Using a Life-Cycle Model to Predict Induced Entry Effects of a $1 for $2 Benefit Offset in the SSDI Program

Abstract

This paper describes an empirical life cycle model and uses it to predict the behavioral responses to a change in the Social Security Disability Insurance (SSDI) program known internally within the Social Security Administration as the “$1 for $2 benefit offset”. This policy has not been enacted yet, but has been actively supported by disability advocates as a way to provide greater incentives for SSDI beneficiaries who have fully or partially recovered from their disabilities to return to work. In contrast to the large predicted increase in return to work, the life-cycle model predicts that the $1 for $2 offset will not have a very significant induced entry effect. The number of SSDI applications increases by 2.2% in our simulations, and SSDI rolls increase by 3.2%. The mean duration on the program increases only slightly, from 12.7 years to 13.0 years.