Selective exercise of discretion in disability insurance awards

Abstract

Variation in assessor stringency in awarding benefits leaves applicants exposed to uninsured risk that could be systematic if discretion were exercised selectively. Using administrative data on disability insurance (DI) applications in the Netherlands, we show that even in one of the most rule-based DI programs, there is still between assessor variation in awards, and there is systematic variation in assessment across applicants. Discretion is exercised in favor of lower-wage applicants relatively more than it is used to benefit higher-wage applicants. This is evident indirectly from downward discontinuities in pre-disability wages just above benefit entitlement thresholds and directly from wage-related differences in the extent to which assessors intervene in the semi-automated calculation of earnings capacity. While lower-wage applicants benefit on average, they are exposed to greater risk from between assessor variation in the exercise of discretion. Rule-based disability evaluation can reduce, but not eliminate, between-applicant variation in awards.