Protecting the Household Incomes of Older Workers with Significant Health-Related Work Limitations in an Era of Fiscal Responsibility

Many proposals designed to reduce federal budget deficits include retirement policy reforms that would delay workers’ access to retirement benefits or reduce the value of benefits to those who retire early. Such reforms would have adverse consequences for the economic well-being of older workers with health-related work limitations. In this paper, we explore a set of policy options that take a "work-support" approach-an earned income tax credit (EITC), an employment services allowance, and a health insurance subsidydesigned to encourage and help workers continue to work if they can. To arrive at a population that might be eligible for such benefits, we first develop a straightforward model to predict the likelihood that a worker reporting a health-related work limitation would experience economic hardship as a result. The model bounds the target population by excluding those who are not expected to experience financial hardship from earnings loss due to a health-related work limitation. It also demonstrates an approach to eligibility determination that would discourage gaming and support rapid eligibility determination-critical for a program designed to extend employment and prevent financial hardship. Using conservative assumptions about program costs, our most expensive program would have a per capita cost of $14,600, or $11,300 if the health insurance subsidy is viewed as an ACA cost. This can be compared to estimated mean annual benefits of $14,855 in 2009 for Social Security Disability Insurance (SSDI) beneficiaries age 50 and older, plus $11,000 per year for Medicare after the 24-month waiting period. Because of its more favorable work incentives, a work-support program is likely to reduce hardship more than a program that preserves existing benefits for the same workers at comparable cost and is likely to be no more difficult to administer.