Does Retiree Health Insurance Encourage Early Retirement?

49 Pages Posted: 19 Nov 2018

See all articles by Steve Nyce

Steve Nyce

Willis Towers Watson

Sylvester J. Schieber

Willis Towers Watson; Independent

John B. Shoven

Stanford University - Department of Economics; National Bureau of Economic Research (NBER)

Sita Slavov

George Mason University - School of Policy, Government, and International Affairs

David A. Wise

National Bureau of Economic Research (NBER); Harvard University - Harvard Kennedy School (HKS)

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Date Written: August 2014

Abstract

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.

JEL Classification: I11, J26, J32, J63

Suggested Citation

Nyce, Steve and Schieber, Sylvester J. and Schieber, Sylvester J. and Shoven, John B. and Slavov, Sita and Wise, David A., Does Retiree Health Insurance Encourage Early Retirement? (August 2014). Journal of Public Economics, Vol. 104, 2013, Available at SSRN: https://ssrn.com/abstract=3279680

Steve Nyce

Willis Towers Watson ( email )

875 Third Avenue
New York, NY 10022
United States

Sylvester J. Schieber

Willis Towers Watson ( email )

875 Third Avenue
New York, NY 10022
United States

Independent ( email )

John B. Shoven

Stanford University - Department of Economics ( email )

Landau Economics Building
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Stanford, CA 94305-6072
United States
650-326-5377 (Phone)
650-328-4163 (Fax)

National Bureau of Economic Research (NBER)

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Sita Slavov (Contact Author)

George Mason University - School of Policy, Government, and International Affairs ( email )

Founders Hall
3351 Fairfax Dr.
Arlington, VA 22201
United States

David A. Wise

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Harvard University - Harvard Kennedy School (HKS)

79 John F. Kennedy Street
Cambridge, MA 02138
United States

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