DO ADULT CHILDREN MATTER?—THE EFFECTS OF NATIONAL HEALTH INSURANCE ON RETIREMENT BEHAVIOR: EVIDENCE FROM TAIWAN

I. INTRODUCTION Population aging and low fertility rate have brought a challenge to more and more countries as the growth in early retirement places an unsustainable burden on the younger generation. Between 2006 and 2050, the projected percentage of population aged 60 yr or older will grow worldwide from 11% to 22%, in North America from 17% to 27%, in Europe from 21% to 34%, in China from 11% to 31%, and in Japan from 27% to 42% (United Nations, Department of Economic and Social Affairs, Population Division, 2006). However, labor force participation among senior populations is decreasing with time. As a result, increasing the labor force participation rate (LFPR) of people aged 55-64 yr is one of the major goals of social policy within the European Union under the Lisbon and Amsterdam Treaties (Leibfritz, 2003). Previous studies of retirement behavior mainly document that health status and post-retirement income (including pensions, disability insurance, or social security) are primary determinants of one's retirement decision. However, before 1990, there was virtually no work on the impact of health insurance on labor supply and job mobility decisions (Gruber and Madrian, 2002). As medical costs continue to rise globally, the availability of postretirement health insurance has since 1990 drawn much attention in this line of research. The U.S. literature suggests that access to postretirement health insurance or pensions makes early retirement more attractive (Currie and Madrian, 1999; Gruber and Madrian, 1995, 2002; Madrian, 1994; Rogowski and Karoly, 2000). Medicare is also an important concern when workers in the United States consider the timing of their retirement (Madrian and Beaulieu, 1998; Rust and Phelan, 1997). Gruber and Madrian (1995) found that 1 yr of continuation of coverage raises the retirement hazard by 30% in the United States. They concluded that policies to provide universal health insurance coverage could lead to a large increase in the rate of early retirement. On the other hand, there has been little investigation into this issue in Asian countries where aging is as prominent as it is in Western societies. This article addresses this gap by conducting a case study for Taiwan. In Taiwan, postretirement health insurance was limited to government employees before the introduction of National Health Insurance (NHI) on March 1, 1995. Because NHI provides universal health insurance coverage for all citizens, private workers gain postretirement health insurance. This social experiment makes it feasible for economists to examine people's response to postretirement health insurance when they consider their labor force participation decisions. Mete and Schultz (2002) conducted the first analysis of the effect of Taiwan's NHI on labor force participation among the elderly. Their study comparing public workers (who always had postretirement health insurance) to private workers (who gained postretirement health insurance) suggested that NHI had little impact. However, their work does not take into account a pension reform in the public sector that occurred at the same time. This paper develops a new identification strategy based on the strong tendency among Taiwanese adult children to provide their elderly parents with significant "family insurance." Specifically, the author questions whether or not NHI has had a greater impact on people with fewer adult children. The effects of health insurance on retirement decisions may differ in Taiwan compared to Western countries because the elderly depend on their children to a much greater extent. In fact, despite an increasing trend toward living independently, the majority of elderly Taiwanese citizens still live with their children. Moreover, most adult children (no matter whether they reside with their parents or not) offer substantial financial support to their parents. These facts are in line with the argument of Kotlikoff and Spivak (1981) that families can self-insure against uncertainties. …