External Medical Review in the Disability Determination Process

This paper investigates the effects of introducing mandatory external medical review for disability insurance (DI) applications in a system relying on treating physician testimony. Using a unique policy change and administrative data from Switzerland, I show that external medical review reduces DI incidence by up to 23%. Incidence reductions are closely tied to difficult-to-diagnose conditions, suggesting inaccurate assessments by treating physicians. Due to a partial benefit system, reductions in full pension benefit awards are partly offset by increases in partial benefits. More intense screening also increases labor market participation, indicating either moral hazard or substantial income effects on the side of applicants. Existing benefit recipients are downgraded and lose part of their pension when scheduled medical reviews occur. Back-of-the-envelope calculations indicate that external medical review is highly cost-effective.