Health Insurance and Retirement of Married Couples
Health insurance is a potentially important determinant of employment behavior at older ages inthe United States. Most health insurance in the U.S. is provided by employers until eligibility forMedicare begins at age 65. A key link between health insurance and employment is that someemployer health insurance plans continue to provide coverage for retirees while others do not.Retiring before age 65 exposes individuals and their spouses who lack retiree health insurancecoverage to the risk of potentially catastrophic medical expenditure. We build a dynamicbehavioral model of the employment decisions of older couples that includes risky medicalexpenditure and health insurance. Estimates of the model allow us to determine the empiricalimportance of health insurance constraints in explaining the timing of retirement of couples.Estimates using data from the Health and Retirement Survey indicate that couples have amoderate degree of aversion to the risk of large medical expenditure. The risk-reducing featureof health insurance can fully account for the relatively modest observed association betweenretiree health insurance and employment for married men, but can account for only about onethird of the large observed association for married women.
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Finance and Economics Discussion Series
94-10, Board of Governors of the Federal Reserve System (U.S.).
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