Does external medical review reduce disability insurance inflow?

TL;DR

This study examines how external medical reviews in Swiss disability insurance reduce inflow by 23%, especially for difficult-to-diagnose cases, and improve cost-effectiveness and labor market participation.

Contribution

It provides empirical evidence that external medical review significantly decreases DI inflow and enhances screening accuracy, especially for complex cases, with cost-effective implications.

Findings

DI inflow reduced by 23% due to medical review

Increased labor market participation from more intense screening

Reductions in full benefits offset by partial benefit increases

Abstract

This paper investigates the effects of introducing external medical review for disability insurance (DI) in a system relying on treating physician testimony for eligibility determination. Using a unique policy change and administrative data from Switzerland, I show that medical review reduces DI incidence by 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 benefit awards are partly offset by increases in partial benefits. More intense screening also increases labor market participation. Existing benefit recipients are downgraded and lose part of their benefit income when scheduled medical reviews occur. Back-of-the-envelope calculations indicate that external medical review is highly cost-effective. Under additional assumptions, the results provide a lower bound of the effect on the false positive award error rate.