# Presentation: 786035

## The Decline in Employer-Sponsored Health Insurance for Retirees and Its Impact on Older Americans

- Erin Strumpf
- Harvard University
- strumpf@fas.harvard.edu
- June 24, 2006

- Funding from the National Institute on Aging, Grant Number T32-AG00186, is gratefully acknowledged.

## A Major Shift In Retiree Benefits

- Employer-sponsored health insurance is an important source of coverage for older Americans
- Rates of employer offer of retiree health insurance (RHI) have declined from 66% of large firms in 1988 to 33% in 2005
- We can expect future cohorts of retirees will have much lower rates of RHI coverage
- What are the implications for labor force participation, risk protection and health?

**Notes:**
66% of those aged 55-64 had ESI in 2002 
54% of retired had ESI
78% of employed had ESI
All either as own or dependent
(CPS data in Weller, Wenger, and Gould, 2004, p. 26)

200+ employees – Kaiser/HRET survey 2005

Over half (55%) of workers 50 to 64 with individual coverage spent over $3,600 on annual premiums, compared to 16 percent with employer coverage. 

## Empirical Strategy

- Health and Retirement Survey, 1992-2002
- Panel of respondents aged 47-64 who report having employer-sponsored health insurance in 1992 (N = 6,889)
- Compare outcomes for those with and without an RHI offer (1994-2002)
- Use health shocks to compare the effect of RHI offer for those in poor health

## Identifying Assumptions

- Effect of retiree health insurance offer:
- Given employer-sponsored coverage, those with and without an RHI offer are similar at baseline
- Differential effects by health status:
- Given baseline health status, health shocks are exogenous

**Notes:**
To interpret the offer coefficient:
RHI offer: any preferences for leisure or unobservable health characteristics are included in the selection into a job with ESI

To interpret the interaction terms:
Health shocks: the severity of the event, if not the event itself, is not related to health insurance status (RHI offer)

## Full-Time Retirement Before Age 65

- Retirement it = α + β1 RHIoffer i1 + β2 HealthShock it +   β3 RHIoffer i1*HealthShockit + Xit + Yeart + ε
- Covariates include:
- Respondent’s and spouse’s demographics and health
- Household income and assets
- Pension information, industry and occupation

**Notes:**
Condition on tenure in current job
Use the predicted probability of RHI offer based on employer characteristics (firm size, industry, region)

Conditional on employer sponsored health insurance and not retired in 1992
Health shocks are new in the current year and are:
Chronic: congestive heart failure, high blood pressure, diabetes, lung disease, arthritis or a psychiatric illness
Acute: heart attack, angina, stroke or cancer

Robust to controls for:
individual and spousal demographic and health characteristics
household income
pension information, industry and occupation

## Estimated Effect of RHI Offer on Full-Time Retirement

- *significant at 1%, ** 0.1%
- Standard errors are adjusted for the complex survey design and clustered at the individual level.

|  | OLS | Percent Change |
| --- | --- | --- |
| RHI Offer | 0.0721** | 35% |
|  | [0.0099] |  |
|  |  |  |
| Acute Health Shock | 0.0979* | 49% |
|  | [0.0375] |  |
|  |  |  |
| Acute*Offer | -0.0048 | -2% |
|  | [0.0492] |  |
|  |  |  |
| R squared | 0.1446 |  |
| N | 13,386 |  |

**Notes:**
20% FT retired (if not FT retired in 1992)

Of those with chronic (current wave or 1 lag): only 30% ft retired
Of those with acute (current wave or 1 lag): about 40% ft retired

Strong and large effects of offer, which remain after adding important covariates.
Health shocks are also important predictors of retirement.
The interaction terms are insignificant and close to zero (but imprecise zeros).  Important for two reasons:
	Suggests that conditional on a health shock RHI offer status isn’t significantly affecting retirement behavior.
	Suggests that there isn’t significant differential selection into retirement based on offer with respect to health. (Sicker people retire, but there’s no evidence that, conditional on offer, health status is related to retirement).

Robust to probit specification.

## Other Results

- RHI offer decreases out-of-pocket spending by 6%, or $275, on average in the top 40% of the spending distribution
- Among retirees, RHI decreases out-of-pocket spending by 21%, or $1,300
- RHI offer has no significant effects on insurance coverage
- Suggestive results that RHI offer increases outpatient medical care utilization
- No evidence of an effect of RHI offer on health

**Notes:**
Utilization: Rx drug use, doctor’s visits and outpatient surgery

## Policy Implications

- The current decline in RHI offer rates is likely to impact future cohorts of retirees
- Decrease early retirement rates
- Decrease protection from high out-of-pocket medical costs
- Policymakers and researchers should start now to examine the efficiency and effectiveness of different sources of health insurance coverage for the near-elderly population