Does Retiree Health Insurance Encourage Early Retirement?

Abstract

The strong link between health insurance and employment in the United States may cause workers to delay retirement until they become eligible for Medicare at age 65. However, some employers extend health insurance benefits to their retirees, and individuals who are eligible for such retiree health benefits need not wait until age 65 to retire with group health coverage. We investigate the impact of retiree health insurance on early retirement using employee-level data from 54 diverse firms that are clients of Towers Watson, a leading benefits consulting firm. We find that retiree health coverage has its strongest effects at ages 62 through 64. Coverage that includes an employer contribution is associated with a 6.3 percentage point (36.2 percent) increase in the probability of turnover at age 62, a 7.7 percentage point (48.8 percent) increase in the probability of turnover at age 63, and a 5.5 percentage point (38.0 percent) increase in the probability of turnover at age 64. Conditional on working at age 57, such coverage reduces the expected retirement age by almost three months and reduces the total number of person-years worked between ages 58 and 64 by 5.6 percent.

Is the Affordable Care Act Affecting Retirement Yet?

“…A large literature analyzes the effect of health insurance on the retirement decision (Blau & Gilleskie, 2001, 2006, 2008Fitzpatrick, 2014;French & Jones, 2011;Gruber & Madrian, 1995Gustman & Steinmeier, 1994;Johnson, Davidoff, & Perese, 2003;Karoly & Rogowski, 1994;Leiserson, 2013;Lumsdaine, Stock, & Wise, 1996;Madrian & Beaulieu, 1998;Madrian, Burtless, & Gruber, 1994;Nyce, Schieber, Shoven, Slavov, & Wise, 2013;Robinson & Clark, 2010;Rogowski & Karoly, 2000;Rust & Phelan, 1997;Scholz & Seshadri, 2013;Shoven & Slavov, 2014;Strumpf, 2010). Nearly all of these papers find that the availability of insurance that is not contingent upon one's own continued work -from Medicare, as a dependent on a spouse's policy, from coverage intended for early retirees, or from COBRA -significantly increases the probability of retirement.…”

The Affordable Care Act as retiree health insurance: implications for retirement and Social Security claiming

“…2 Studies of the relation of retiree health insurance to retirement include Clark (2015), Currie and Madrian (1999), French and Bailey Jones (2011), Gilleskie and Blau (2006), Gustman andSteinmeier (1994, 2000), Madrian (1994), Marton and Woodbury (2006) and Nyce et al (2011). For studies of the relation between retirement and Social Security benefit claiming, see Glickman and Hermes (2015), Gustman and Steinmeier (2015), Henriques (2012), Slavov (2012, 2014), and Song and Manchester (2007).…”

Baby boomers in the United States: Factors associated with working longer and delaying retirement

“…Along with demographic characteristics, several other factors may underlie the trends of the aging workforce in the U.S. In recent years, many employers have replaced defined benefit (DB) pension plans with defined contribution (DC) pension plans, and have eliminated health‐care benefits for retirees [Burtless and Aaron, ; CPWR, ; Nyce et al, ]. Despite the Affordable Care Act, individuals without employer‐funded retiree health benefits are likely to postpone retirement in order to keep their insurance benefits [Nyce et al, ; Levy et al, ].…”

“…In recent years, many employers have replaced defined benefit (DB) pension plans with defined contribution (DC) pension plans, and have eliminated health‐care benefits for retirees [Burtless and Aaron, ; CPWR, ; Nyce et al, ]. Despite the Affordable Care Act, individuals without employer‐funded retiree health benefits are likely to postpone retirement in order to keep their insurance benefits [Nyce et al, ; Levy et al, ]. On the other hand, increasing age eligibility for full retirement benefits, increasing penalties for early retirement, and substantially increasing the delayed retirement credit (DRC) for Social Security benefits have been structured to encourage individuals to retire later in life [Hurd and Rohwedder, ; Tang et al, ].…”