Essay About Dutch Regions Case Workers And Cost-Benefit Analysis Shows

Screening Disability Insurance Applications
Essay Preview: Screening Disability Insurance Applications
Report this essay
Screening Disability Insurance Applications
Philip de Jong1
Maarten Lindeboom2
Bas van der Klaauw3
February 2006
Abstract
This paper investigates the effects of intensified screening of disability insurance benefit
applications. A large-scale experiment was setup where in 2 of the 26 Dutch regions case workers
of the disability insurance administration were instructed to screen applications more intense. The
empirical results show that intense screening reduces long-term sickness absenteeism and
disability insurance applications. This provides evidence both for direct effects of the more
intensive screening on work resumption during sickness absenteeism and for self-screening by
potential disability insurance applicants. We do not find any spillover effects to the inflow into
unemployment insurance. A cost-benefit analysis shows that the costs of the intensified screening
are only a small fraction of its benefits.
1 Aarts, De Jong, Wilms & Goudriaan Public Economics B.V. and University of Amsterdam
2 Free University Amsterdam, Tinbergen Institute, IZA, HEB and Netspar
3 Free University Amsterdam, Tinbergen Institute, Scholar, IFAU, IZA and CEPR.
Address: Department of Economics, Free University Amsterdam, De Boelelaan 1105, NL–1081 HV Amsterdam, The Netherlands.
The authors thank Jonneke Bolhaar for excellent research assistance. We furthermore would like to thank John Bound, Norma Coe
and participants at seminars at Uppsala University and Utrecht University for useful comments and suggestions.
1 Introduction
In most OECD countries disability insurance (DI) programs are substantial in size and have
experienced strong growths in the recent decades (OECD, 2003). The Dutch DI program used to
be an extreme example of uncontrolled growth. In the early seventies, less than 4% of the
working age population was collecting DI benefits. This number increased to about 10% in the
beginning of the nineties and since then, despite a series of policy measures, remained around the
same level.1 This makes it the largest and most expensive social insurance program in the
Netherlands and a recurrent topic of in political debate.
Over the time period we consider, sick employees had a one year waiting period before
entering the DI Scheme. During this period employers are responsible for financing sick pay.2
After 13 weeks of sickness absence the employer reports the sick employee to the National Social
Insurance Institute (NSII), the public administrator of the unemployment insurance (UI) and DI
schemes. If the worker has not fully returned to work before 39 weeks, the worker and employee
file a DI benefit claim. Recently the role of the NSII changed. Until April 2002 the NSII had
during the waiting period of sickness absenteeism a joint responsibility with the sick worker and
the employer to get the sick worker back to work. Since April 2002, the NSII is no longer
involved during the waiting period. DI benefit applications should be accompanied by a
reintegration report, containing the reintegration plan as drafted after 8 weeks of sickness
absenteeism, and an assessment on why it has not (yet) resulted in work resumption. The case
worker of the NSII checks this reintegration report. If the report is delayed, incomplete, or proves
that the reintegration efforts by the sick worker and employer have been insufficient the DI
benefit application is not processed and the case worker of the NSII can decide to start a sanction
procedure. In almost all cases of noncompliance the employer is hold responsible, which means
that almost all sanctions are imposed on employers. A sanction to the employer implies that the
employer is obliged to continue sick pay for some additional months after the regular waiting
period elapsed. Sanctions to the worker are rare, but these imply that the worker receives a
reduced benefit level during the first few months of collecting DI benefits.
DI programs are often subject to moral hazard (e.g. Bound and Burkhauser, 1999). When
the costs of applying for DI benefits are relatively low, a generous DI program may cause
workers to use DI as a channel to leave the labor force and employers to use DI to lay off
redundant workers. Furthermore, when there is no or little screening of DI applications,
employers may decide to devote none or only a minimal effort in trying to get sick employees
back to work. Intensive screening of the reintegration reports accompanying the DI application
procedure can overcome both moral hazard problems. First, it forces employers to devote serious
1 For the population aged 55 years and older DI rates were as high as 22% in the mid 1990s.
2 Collective bargaining agreements ensure that sick workers receive 90 to 100% of their net salary. Most
employers have insured themselves against financing sick pay.