Abstract
AbstractMany social security systems face high and escalating disability costs. In Chile's new system, the disability assessment procedure includes participation by private pension funds (AFPs) and insurance companies, who finance the benefit, have a direct pecuniary interest in controlling costs and are able to pursue this objective by helping to set criteria and providing countervailing information. We hypothesize that these procedures and incentives will keep costs low, by cutting the incidence of successful claims. Using the Cox proportional hazard model and a retrospective sample of new and old-system affiliates (EPS, 2002), we find that disability hazard rates are only 20–35% as high in the new system as in the old traditional system. Analysis of mortality rates suggests that the new system has accurately targeted individuals with more severe medical problems.
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