Anticipated and unanticipated incentives of disability insurance experience rating: the case of the Netherlands

Objectives: This paper examines and discusses the effects of experience rating on the flow into disability insurance in the Netherlands. A special focus is given to the distinction between (and importance of) anticipated and unanticipated effects of experience rating. Methods: We use longitudinal administrative firm data from the Dutch social benefit administration. The data set covers employers from 2000 to 2002. To estimate the anticipated effects of experience rating, we take advantage of the fact that the premium-setting system was incomplete - that is, there is no (further) incentive to reduce disability insurance costs if a maximum premium is reached. Unanticipated effects are uncovered by comparing employers that are hit by premium increases (ie the 'treatment' group) with those who are not (ie the control group), while controlling for employer fixed effects. Results: There is only weak evidence for the anticipated effects of incentives. This contrasts with substantial findings on the unanticipated impact of experience rating. Conclusions: It appears that the decision of employers to increase preventive activities is mainly an issue of being aware of the experience-rating incentive. When taking a broader perspective, however, evidence suggests that the enhanced incentives have also led to an increased flow into unemployment insurance and other benefit schemes.