The Decline in EmployerSponsored Health Insurance for
Retirees and Its Impact on Older
Americans
Erin Strumpf
Harvard University
strumpf@fas.harvard.edu
June 26, 2006
Funding from the National Institute on Aging, Grant Number T32-AG00186, is
gratefully acknowledged.
A Major Shift In Retiree Benefits
• Employer-sponsored health insurance is an
important source of coverage for older Americans
• Rates of employer offer of retiree health insurance
(RHI) have declined from 66% of large firms in
1988 to 33% in 2005
• We can expect future cohorts of retirees will have
much lower rates of RHI coverage
• What are the implications for labor force
participation, risk protection and health?
Health and Retirement Survey 1992-2002
• Offer: can continue current employer-sponsored
coverage in retirement
• Health Shocks: acute (heart attack, stroke) and
chronic (diagnosis of diabetes, high blood
pressure)
• Full-Time Retirement: not working or looking for
work and indicates retirement
• Health: self-reported health, difficulty with
activities of daily living
Empirical Strategy
• Panel of respondents aged 47-64 who report
having employer-sponsored health insurance in
1992 (N = 6,889)
• Compare outcomes for those with and without
an RHI offer (1994-2002)
• Use health shocks to compare the effect of RHI
offer for those in poor health
Identifying Assumptions
• Effect of retiree health insurance offer:
– Given employer-sponsored coverage, those
with and without an RHI offer are similar at
baseline
• Differential effects by health status:
– Given baseline health status, health shocks
are exogenous
Full-Time Retirement Before Age 65
• Retirement it = α + β1 RHIoffer i1 + β2 HealthShock it +
β3 RHIoffer i1*HealthShockit + Xit + Yeart + ε
• Covariates include:
– Respondent’s and spouse’s demographics and health
– Household income and assets
– Pension information, industry and occupation
Estimated Effect of RHI Offer on
Full-Time Retirement
RHI Offer
OLS
Percent Change
0.0721**
35%
[0.0099]
Acute Health Shock
0.0979*
49%
[0.0375]
Acute*Offer
-0.0048
-2%
[0.0492]
R squared
0.1446
N
13,386
*significant at 1%, ** 0.1%
Standard errors are adjusted for the complex survey design and clustered at the individual level.
Out-of-Pocket Medical Care Spending
• Out-of-pocket spending after controlling for
demographics, baseline health status and year
• Percentile treatment effect =
spendp (offer = 1) – spendp (offer = 0)
• RHI offer decreases out-of-pocket spending by
6%, or $275, on average in the top 40% of the
spending distribution
• Among retirees, RHI decreases out-of-pocket
spending by 21%, or $1,300
Out of Pocket Medical Spending Residuals
$
0
500
Less than age 65, Covariate Adjusted
0
20
40
60
80
percentile
centile treatment estimate
95% CI upper bound
95% CI lower bound
100
Other Results
• RHI offer has no significant effects on insurance
coverage
• Suggestive results that RHI offer increases
outpatient medical care utilization
• No evidence of an effect of RHI offer on health
Policy Implications
• The current decline in RHI offer rates is likely to
impact future cohorts of retirees
– Decrease early retirement rates
– Decrease protection from high out-of-pocket medical
costs
• Policymakers and researchers should start now
to examine the efficiency and effectiveness of
different sources of health insurance coverage
for the near-elderly population