Reforming the Disabled State: A Comparative Policy Analysis

Background and Purpose: The traditional model for determining eligibility for disability benefits is based on the premises that an individual must be totally unable to work and that the disability can be medically determined.  With a focus on US disability policy, this paper examines an alternative model that has been described as the work-capacity approach (OECD, 2010). This approach departs from the traditional binary/medical model of disability determination by seeking to identify a person's remaining work-abilities, as opposed to an individual's inability to work. This paper appraises whether work-capacity reforms in three countries  – Denmark, Great Britain, and the Netherlands – have resulted in improvements in the accuracy of the disability determination process and in the employment of people with disabilities.

Methods: Data: The analysis draws on an examination of a harmonized cross-national panel dataset (N=14,705) that provides a nationally representative sample of older adults (50 years of age to state entitlement age) in each country before and after the respective reforms (2004 and 2012). Specifically, I merge nationally representative samples of older adults in the Netherlands and Denmark from the Survey of Health Aging and Retirement in Europe with a representative sample in Great Britain from the English Longitudinal Study of Aging.

Analytic approach: Borrowing from Banks et al. (2015), I construct a health index that allows for an examination of differences in the benefit participation and employment patterns of older adults in fair and poor health before and after the reforms were adopted in each country. A linear probability model is used to explore these differences with the results expressed as relative to the mean change of those in good health (i.e. with 0 or 1 health conditions.)

Results: The pre-post reform analysis indicates the improved targeting of benefits toward those in poor health. The share of the population in good and fair health receiving disability benefits declined in all three countries between 2004 and 2012, while the proportion of adults in poor health receiving disability benefits increased in the Netherlands and Denmark but not in Britain.  The analysis, however, provides no indication of improvements in employment for those in fair or poor health. In Denmark, the relative increase in unemployment benefits (6.65 percent) can more than account for the relative decrease in disability benefit receipt (-5.68 percent) among those in fair health. In Britain, it may account for about half of the relative decline in disability benefit receipt (-5.35 percent and 2.20 percent) among those in poor health.

Conclusions and Implications: The pre-post reform analysis suggests that the reforms improved the targeting of benefits towards those with more severe health conditions but the analysis provides no indication of improvements in employment. There is evidence, however, of the substitution of disability benefits for unemployment benefits. Additional studies are needed to understand the effectiveness of work-capacity reforms for individuals less than fifty years of age. Those studies could shed greater light onto whether such a reform could improve the employment prospects and economic well-being of people with disabilities in the US.