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 54 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 through 64. Coverage that includes an employer contribution is associated with a 6.3 percentage point (36.2 percent) increase in the probability of turnover at age 62, a 7.7 percentage point (48.8 percent) increase in the probability of turnover at age 63, and a 5.5 percentage point (38.0 percent) increase in the probability of turnover at age 64. Conditional on working at age 57, such coverage reduces the expected retirement age by almost three months and reduces the total number of person-years worked between ages 58 and 64 by 5.6 percent.

Highlights

• We study the impact of retiree health insurance on the early retirement.

• We utilize a unique administrative dataset from a benefits consulting firm.

• Retiree health coverage increases turnover by 6.3 percentage points at age 62.

• Retiree health coverage increases turnover by 7.7 percentage points at age 63.

• Retiree health coverage reduces years worked between 58 and 64 by 5.6 percent.

Citation:

Steven Nyce, Sylvester J. Schieber, John B. Shoven, Sita Nataraj Slavov, David A. Wise, Does retiree health insurance encourage early retirement?, Journal of Public Economics, Volume 104, August 2013, Pages 40-51, ISSN 0047-2727, 10.1016/j.jpubeco.2013.04.007.