By Claire Brunel
National Bureau of Economic Research (NBER), Digest, May 2012
Employees under the age of 65 have substantially higher turnover rates at firms that offer subsidized retiree health coverage than at firms that do not.
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 benefits need not wait until age 65 to retire with group health coverage.
In Does Retiree Health Insurance Encourage Early Retirement (NBER Working Paper No. 17703), authors Steven Nyce, Sylvester Schieber, John Shoven, Sita Slavov, and David Wise use employee-level data from 64 diverse firms that are clients of TowersWatson, a leading benefits consulting firm, to investigate the impact of retiree health insurance on early retirement. After controlling for individual characteristics and pension incentives, they find that employees under the age of 65 have substantially higher turnover rates at firms that offer subsidized retiree health coverage than at firms that do not. Subsidized retiree health coverage has its strongest effects at ages 62 and 63, resulting in a 21 percent increase in the probability of turnover at age 62 and a 32 percent increase in the probability of turnover at age 63.
Moreover, higher subsidy rates are associated with greater turnover than lower subsidy rates. For example, an employer contribution of 50 percent or more of the cost of health insurance raises turnover by nearly 34 percent at age 62, and by nearly 44 percent at age 63. The authors estimate that a subsidy of 50 percent or more lowers the expected retirement age by 9 months overall, and by more than a year for workers with 15 or more years of experience.
http://www.nber.org/digest/may12/w17703.html
NBER Working Paper – “Does Retiree Health Insurance Encourage Early Retirement?”:
http://papers.nber.org/papers/w17703
And…
Implementation of the Early Retiree Reinsurance Program
GAO (U.S. Government Accountability Office)
September 30, 2011
During the last decade the number of large employers offering health benefits to retirees – including early retirees not eligible for Medicare – has declined. Among all large firms that offered health benefits to active employees from 2001 to 2010, the percentage that offered health benefits to retirees decreased from 39 percent in 2001 to 28 percent in 2010. According to the Agency for Healthcare Research and Quality, individuals age 55 to 64 who lack health insurance are vulnerable to high health care costs associated with serious and chronic illnesses. The Early Retiree Reinsurance Program (ERRP) was established pursuant to the Patient Protection and Affordable Care Act (PPACA) to provide reimbursement to participating employment-based health plans. The reimbursements provided by the program are intended to cover a portion of the cost of providing health benefits to early retirees – individuals age 55 and older who are not eligible for Medicare.
The largest share – about 46 percent – of the $2.7 billion in ERRP reimbursements approved as of June 30, 2011, went to government entities. In general, this distribution of reimbursements is consistent with the provision of retiree health benefits in the marketplace. In particular, government entities are more likely than other types of employers to provide health benefits to their retirees. HHS projects that the $5 billion appropriated for ERRP will be expended by the end of fiscal year 2012 – before the January 1, 2014, end date for the program.
http://www.gao.gov/products/GAO-11-875R
Comment:
By Don McCanne, MD
Job lock is one of the problems with using a system of financing health care that is heavily dependent on employer-sponsored coverage. Individuals who might otherwise consider other options to their current employment are locked into their jobs under the threat of losing their coverage if they leave. Amongst the forgone options, those who could and would want to retire early may have to wait until eligible for Medicare at age 65 if they have to give up their employer-sponsored plan.
There continues to be an erosion in retiree health benefits offered by employers, and this NBER study shows that it makes a difference. The data show that close to 10 percent of individuals at ages 56 to 64 will exit their jobs only if they receive a retiree health plan with an employer contribution of 50 percent or more.
The framers of the Affordable Care Act recognized this problem. Although there are numerous technical complexities, theoretically the state insurance exchanges would provide individuals not qualified for other programs with private insurance plans that were intended to be affordable based on generous pensions or based on income-indexed subsidies. Congress even authorized a transitional program – the Early Retiree Reinsurance Program – which would provide subsidies to encourage employers to continue coverage until the exchanges were up and running. Unfortunately this program will run out of funds by the end of this year.
Should we want people to retire early? With our high rates of unemployment, it would be great to open up employment opportunities for individuals desperate for work. Even if we return to a vibrant economy, many economists recommend that we still need policies to keep unemployment high enough to ensure a competitive labor market, lest the employers would have to pay higher wages or salaries for their employees. So we should establish policies that discourage early retirement? Nonsense.
Some of these economists have suggested that we should not ever allow unemployment rates to drop below 4 percent, in order to prevent labor costs from increasing. Yet these are often the same economists – and politicians – who helped to “end welfare as we know it,” and even now are recommending further reductions in unemployment compensation and in the supplemental nutrition assistance program (food stamps). These market ideologues are supporting an agenda of keeping them unemployed so we can get cheap labor, but starve the individuals we don’t need. Heartless.
If you read the excerpts from the GAO report above, you will see that the government has been more responsible than the private sector. The government is more likely to provide health benefits to their retirees, and more likely to use the Early Retiree Reinsurance Program to benefit them.
But we really don’t all need to become government employees to increase the likelihood of having health coverage should we retire early. We need only to establish an improved Medicare for everyone, then employment and retirement decisions would never have to be based on the availability of health benefits. Everyone would have health care – forever.