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Does Retiree Health Insurance Encourage Early Retirement?

  • Steven Nyce
  • Sylvester Schieber
  • John B. Shoven
  • Sita Slavov
  • David A. Wise

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 retiree health benefits need not wait until age 65 to retire with group health coverage. We investigate the impact of retiree health insurance on early retirement using employee-level data from 64 diverse firms that are clients of Towers Watson, a leading benefits consulting firm. We find that retiree health coverage has its strongest effects at ages 62 and 63, resulting in a 3.7 percentage point (21.2 percent) increase in the probability of turnover at age 62 and a 5.1 percentage point (32.2 percent) increase in the probability of turnover at age 63; it has a more modest effects for individuals under the age of 62. A more generous employer contribution of 50 percent or more raises turnover by 1-3 percentage points at ages 56-61, by 5.9 percentage points (33.7 percent) at age 62, and by 6.9 percentage points (43.7 percent) at age 63. Overall, an employer contribution of 50 percent or more reduces the total number of person-years worked between ages 56 and 64 by 9.6 percent relative to no coverage.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17703.

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Date of creation: Dec 2011
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Publication status: published as Nyce, Steven & Schieber, Sylvester J. & Shoven, John B. & Slavov, Sita Nataraj & Wise, David A., 2013. "Does retiree health insurance encourage early retirement?," Journal of Public Economics, Elsevier, vol. 104(C), pages 40-51.
Handle: RePEc:nbr:nberwo:17703
Note: AG
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