Does Retiree Health Insurance Encourage Early Retirement?

50 Pages Posted: 31 Dec 2011 Last revised: 26 Feb 2019

See all articles by Steve Nyce

Steve Nyce

Willis Towers Watson

Sylvester J. Schieber

Independent

John B. Shoven

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

Sita N. Slavov

American Enterprise Institute; Occidental College - Department of Economics

David A. Wise

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

Multiple version iconThere are 2 versions of this paper

Date Written: December 2011

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.

Suggested Citation

Nyce, Steve and Schieber, Sylvester J. and Shoven, John B. and Slavov, Sita N. and Wise, David A., Does Retiree Health Insurance Encourage Early Retirement? (December 2011). NBER Working Paper No. w17703. Available at SSRN: https://ssrn.com/abstract=1977754

Steve Nyce (Contact Author)

Willis Towers Watson ( email )

875 Third Avenue
New York, NY 10022
United States

Sylvester J. Schieber

Independent ( email )

No Address Available

John B. Shoven

Stanford University - Department of Economics ( email )

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

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Sita N. Slavov

American Enterprise Institute ( email )

1150 17th Street, N.W.
Washington, DC 20036
United States

HOME PAGE: http://www.aei.org/scholar/sita-nataraj-slavov/

Occidental College - Department of Economics ( email )

Los Angeles, CA 90041
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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