Erin Strumpf, Ph.D. McGill University AcademyHealth Health Economics Interest Group June 7, 2008

1. Employer-Sponsored Health Insurance for Early Retirees: Impacts on Retirement, Health and Health Care Erin Strumpf, Ph.D. McGill University AcademyHealth Health Economics Interest Group June 7, 2008 Funding from the National Institute on Aging, Grant Number T32-AG00186, is gratefully acknowledged.

2. Background • Employer-sponsored health insurance is an important source of coverage for older Americans • Rates of employer offer of retiree health insurance (RHI) have declined by 50%, from 66% of large firms in 1988 to 33% in 2005 • Based on these declining rates, we can expect that future cohorts of retirees will have much lower rates of RHI coverage

3. Research Question • What implications can we expect among Americans ages 45-64? • Measure the effect of RHI offer on: • Retirement • Health • Health care spending

4. How Does RHI Offer Affect Health? RHI Offer Retirement RHI Coverage Medical Care Use and Spending Health

5. Existing Literature • Effect of health insurance on retirement • Strong evidence that health insurance affects retirement decisions, but generalizability is often limited • Effect of health insurance on health • Elderly (Medicare): no impact on mortality, some increase in utilization and improvement in self-reported health • Non-elderly: some evidence of small positive effects for marginal populations, mostly no measurable effects Madrian 1994, Gruber and Madrian 1995, 1996, Rust and Phelan 1997, Blau and Gilleskie 2001; McWilliams, et al. 2003, Levy and Meltzer 2004, Meara, et al. 2005, Finkelstein and McKnight 2005, Cutler and Vigdor 2005.

6. Data • Health and Retirement Survey (HRS) 1992-2002 • A longitudinal study of older Americans with interviews every two years • Sample restrictions: • respondents aged 47-63 and report having employer-sponsored health insurance in 1992 • years when respondents are still under age 65 • RHI Offer: can continue current employer-sponsored coverage in retirement

7. Identification Employer-sponsored coverage RHI Offer No RHI Offer Retire Don’t Retire Retire Don’t Retire Health and Medical Spending Health and Medical Spending • Need to show: • RHI offer is conditionally exogenous. • Conditional on offer status, there is no differential selection into retirement with respect to health.

8. Identification • Is RHI offer conditionally exogenous? • Summary statistics for two groups • Robustness checks: subsamples and propensity score weighting • Is there differential selection into retirement? • Interact health status with RHI offer in retirement model • Scale total estimates by percent retired • Estimates from retired, placebo tests on not retired

9. Summary Statistics 1992 Ages 47-63. Means and standard errors (adjusted for survey design and clustering at the individual level). * significantly different from RHI offer group at p<0.01.

10. Full-Time Retirement • Pr(Retirement it) = α + β1 RHIoffer i1 + Xit β2 + Yeart + ε • Covariates: • sex, race, education level, age, marital status, self-reported health • spouse’s demographics • household income and assets • pension characteristics, vesting age, and industry and occupation • Conditional on ESI and not retired in 1992 • RHI offer increases probability of early retirement by 7 percentage points, or 35 percent

11. Differential Effects by Health Status • Pr(Retirement it) = α + β1 RHIoffer i1 + β2 HealthShock it + β3 RHIoffer i1*HealthShockit + Xit β4 + Yeart + ε • New health shock occurs before retirement • Chronic: congestive heart failure, high blood pressure, diabetes, lung disease, arthritis or a psychiatric illness (51%) • Acute: heart attack, angina, stroke or cancer (13%)

12. Differential Retirement by Health Status Marginal effects from probit models. Std errors adjusted for survey design and clustering at the individual level. *significant at 5%, ** 1%, *** 0.1%

13. Health Outcomes • Y it = α + β1 RHIoffer i1 + Xit β2 + Yeart + ε • Fair/poor health based on self-reported health measure (1=excellent, 5=poor) • Change in self-reported health ranges from -4 to 4 • Change in ADLs performed with difficulty ranges from -5 to 5 • Covariates are sex, race, education level, age, and self-reported health in wave 1 • Scaled estimates, use not retired group as a placebo test

14. Estimated Effect of RHI Offer on Health Status The fair/poor health regression is conditional on not being in fair/poor health at baseline. Std errors adjusted for survey design and clustering at the individual level. *significant at 5%, ** 1%, *** 0.1%

15. Out-of-Pocket Medical Care Spending • Distribution of medical care spending significantly right-skewed • Calculate residual out-of-pocket spending after controlling for age, sex, race, education, baseline health status and year • Centile treatment effect: Δ p = {resid spend p (offer = 1) – resid spend p (offer = 0)}

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19. Insurance Value of RHI • U (household income – out-of-pocket medical spending) • Subject each individual to random draws from the empirical distribution of spending in the offered and not offered groups • Calculate risk premia based on expected utility

20. Utility Analysis Results These estimates use a CRRA utility function and a coefficient of risk aversion equal to 3. * Spending draws are capped at 90% of income.

21. Summary of Findings • RHI offer increases the probability of early retirement by 35% • RHI offer has no significant effects on health status • RHI offer provides significant risk protection, decreasing out-of-pocket medical spending by 20% in the top 40% of the spending distribution among retirees • Retired men aged 60-64 value RHI at about $3,400; women $3,100

22. Policy Implications • Lower early retirement rates and delayed retirement • Decreased financial risk protection: changes to individual insurance market and/or public programs • Decline of employer-sponsored health insurance more broadly