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The Effects of Health Insurance and Self-Insurance on Retirement Behavior

  • Eric French
  • John Bailey Jones

Using the first estimable dynamic programming model of retirement behavior that accounts for both savings and uncertain medical expenses, we assess the importance of employer-provided health insurance and Medicare in determining retirement behavior. Including both of these features allows us to determine whether workers value employer-provided health insurance because the subsidy contained in the insurance lowers their average medical expenses, or because health insurance also reduces their medical expense risk. Using data from the Health and Retirement Study, we find that the reduction in expected medical expenses explains about 60% of a typical individual’s valuation of health insurance, with the reduction in volatility explaining the remaining 40%. We find that for workers whose insurance is tied to their job, shifting the Medicare eligibility age to 67 will significantly delay retirement. However, we find that the plan to shift the Social Security normal retirement age to 67 will cause an even larger delay.

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Paper provided by Center for Retirement Research in its series Working Papers, Center for Retirement Research at Boston College with number wp2004-12.

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Length: 78 Pages
Date of creation: Apr 2004
Date of revision: Apr 2004
Handle: RePEc:crr:crrwps:wp2004-12
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