The Work Disability Trap: How “Suspicious” Compensation Systems Produce ill and Disabled Clients

Jurgen De Wispelaere, Stockholm School of Economics in Riga

Christian Ståhl, Linköping University

In a new paper, “The work disability trap: manifestations, causes and consequences of a

policy paradox”, we outline a policy paradox inherent to many, if not most, sickness insurance systems: the work disability trap. A policy paradox appears when a policy ends up producing precisely those effects it is designed to prevent or mitigate. Sickness insurance systems today contribute to creating and maintaining illness and disability, which serves as a prime example of a policy paradox.

(It should be mentioned that this post, and the paper, concerns work disability, which is

different from disability in general although they may overlap. Work (dis)ability is what

sickness insurance systems assess when determining eligibility for sickness benefits, and

usually concerns relatively short-term conditions and where those with work disabilities

regularly undergo occupational rehabilitation to be able to return to work.)

The basic task of a sickness insurance system is twofold: to offer financial stability when

someone cannot provide for her/himself because of illness or disability, and to support the

person in her/his path towards recovery and regaining work ability. Sick leave and disability

prevention policies in the past decades have largely conflated these goals and seem to have

concluded that the former has a negative impact on the latter. The driving assumption is that generous insurance schemes lead to malingering and over-utilisation. This is moral hazard reasoning par excellence.

Consequently, sickness and disability compensation systems have become increasingly

restrictive in their eagerness to chase down “cheaters”. By making assessment procedures

more rigid and strict, insurance agencies aim to ensure that those claiming illness

compensation are effectively ill. In extremis, some compensation systems have introduced

actual “cheat tests” to prevent anybody who isn’t eligible from receiving benefits.

However, one effect of compensation systems becoming more restrictive is that anyone who

shows even the slightest sign of improvement in their health condition will swiftly lose their

benefits. What we describe as the work disability trap quite literally involves a system locking people into illness and disability by punishing what should in fact be rewarded – i.e., a sustained effort at recovery and regaining ability.

This policy development is based on the principle that return to work should happen as

quickly as possible, combined with the idea that once a person has returned to work, they are considered as having regained their work ability in full. The problem with this approach is that this is not how rehabilitation works in practice. More often than not, rehabilitation is not a binary process, but involves trying, relapsing, and trying again. Today’s compensation

systems are ill-suited to accommodate a realistic rehabilitation trajectory. Those who have

their benefits withdrawn will have a difficult time getting back into the system; better then not to try at all!

The most bizarre aspect of the current situation is that, contrary to public perception, people undergoing work ability assessments typically both tend to be truthful in responding to questions from assessors and to try all they can to regain their work ability. In our work-

centred society, much of our self-worth is determined by participating in the labor market,

and most people wish to contribute to society. Paradoxically, while the system creates

incentives for the behaviour it tries to avoid, work disabled people by and large still do act

contrary to these perverse incentives – often at considerable personal loss. This is in large part because people value their ability and self-worth more than any financial gain they might get from gaming the system.

This insight also suggests the solution to the work disability trap. Making the system

increasingly suspicious only makes the problem worse. Why not apply the policy-makers’

version of Occam’s Razor: trust that people are not on sick leave because they want to take

advantage of the system, but because they are too sick to work. A trusting system does not

withdraw benefits as soon as a rehabilitation process is starting to show results. Rather, it

gives the person the opportunity to try getting back to work without having to fear ending up in poverty. A trusting system starts from the position that work disabled people are not

inherently cheaters; rather, it assumes that ill and disabled people continue to be a part of

society and want to contribute to it. In this context, the now familiar and popular idea of a

universal basic income is worth exploring further.

All systems have their problems. And some people do cheat. But making that a fundamental

part of the system is deeply problematic and produces a policy paradox. A compensation

system that is too busy chasing alleged cheaters will in the process deny sick people their

benefits, with dire consequences for both the health and wellbeing of sick and disabled

individuals and for the legitimacy of the system itself. Instead of worrying about the moral

hazard of generous systems we ought to worry much more about the moral hazard of a system that places sick people under constant suspicion.