Health insurance and the labor supply decisions of older workers: Evidence from a U.S. Department of Veterans Affairs expansion

Abstract

This paper exploits a major mid-1990s expansion in the U.S. Department of Veterans Affairs health care system to provide evidence on the labor market effects of expanding health insurance availability. Using data from the Current Population Survey, we employ a difference-in-differences strategy to compare the labor market behavior of older veterans and non-veterans before and after the VA health benefits expansion to test the impact of public health insurance on labor supply. We find that older workers are significantly more likely to decrease work both on the extensive and intensive margins after receiving access to non-employer based insurance. Workers with some college education or a college degree are more likely to transition into self-employment, a result consistent with “job-lock” effects. However, less-educated workers are more likely to leave self-employment, a result suggesting that the positive income effect from receiving public insurance dominates the “job-lock” effect for these workers. Some relatively disadvantaged sub-populations may also increase their labor supply after gaining greater access to public insurance, consistent with complementary positive health effects of health care access or decreased work disincentives for these groups. We conclude that this reform has affected employment and retirement decisions, and suggest that future moves toward universal coverage or expansions of Medicare are likely to have significant labor market effects.

The Impact of Disability Benefits on Labor Supply: Evidence from the VA's Disability Compensation Program

“…Table 4) implies an extensive margin labor force participation elasticity of -0.50. This is similar in magnitude to the estimates reported by Boyle and Lahey (2010), who study the labor supply of a relatively comparable set of veterans who were nearing retirement in the mid-1990s. We also cannot rule out that the participation elasticity we obtain incorporates both pure (non-incentive) income effects from increased transfer income and additional incentive effects stemming from the potential availability of IU and SSDI benefits.…”

“…They hypothesize that the lower employment rate of Vietnam-era veterans is due to the availability of Veterans Disability Compensation benefits. In related work on the labor supply of veterans, Boyle and Lahey (2010) study the expansion of the Veterans Health Insurance 7 Using an approach similar to Bound (1989), Chen and van der Klauuw (2008) estimate even smaller effects of SSDI enrollment, with an upper bound of a 20 percent reduction in labor force participation. Results from Von Wachter et al (2011) suggest labor supply effects may be larger for younger SSDI recipients.…”

The Effect of Public Insurance Coverage for Childless Adults on Labor Supply

“…French and Jones (2011) show Medicare eligibility is an important determinant of retirement decisions. Boyle and Lahey (2010) find decreased labor supply on both the extensive and intensive margins for older veterans eligible for Department of Veterans Affairs health programs.…”

Fiscal Externalities and Optimal Unemployment Insurance

“…Blau (1994), Rust and Phelan (1997), and Coile and Gruber (2007)). In addition, tax revenue effects can be present even for programs which are not directly tied to labour force status; government policies regarding health insurance have been shown to affect incentives for retirement, job transitions, and entrepreneurship, as documented by Gruber and Madrian (1994), Boyle and Lahey (2010), and Fairlie, Kapur, and Gates (2011).…”