Do Self‐insurance and Disability Insurance Prevent Consumption Loss on Disability?

Abstract

We show the extent to which public insurance and self‐insurance mitigate the cost of health shocks that limit the ability to work. We use consumption data from the UK to estimate insurance provided by government disability programmes. Individuals with a work‐limiting health condition, in receipt of disability insurance, have 9% lower consumption than those without such a condition. Self‐insurance through savings and a work‐active partner each improve outcomes by about 3%. Reduced generosity of disability insurance after 1995 is associated with increases in the consumption loss on disability, implying worse insurance, but with fewer false claimants, implying better targeting.

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