The Implications of Declining
Retiree Health Insurance
Courtney Monk and Alicia H. Munnell
Center for Retirement Research at Boston College
11th Annual Joint Conference of the Retirement Research Consortium
The National Press Club
Washington, DC
August 11, 2009
1
Access to retiree health insurance (RHI) is
falling, and its cost is rising.
Percent of Large Employers Offering RHI to Active
Employees, Selected Years, 1988-2006
70%
66%
Median Monthly RHI Premiums, 2002-2006
(2006 Dollars)
$150
60%
$134
20 0 2
20 0 4
20 0 6
$125
46%
50%
40%
40%
38%
$10 0
$10 0
$77
35%
$75
30%
$53
$50
20%
10%
$25
0%
$0
1988
1991
1995
2003
2006
$51
$34
Age 55-6 4
Age 6 5+
Sources: Gary Claxton, Bianca DiJulio, Benjamin Finder, and Marian Jarlenski. Employer Health Benefits 2008: An Annual Survey,
2008. Menlo Park, CA: Kaiser Family Foundation; and authors’ calculations from the University of Michigan. Health and Retirement
Study (HRS), 2002-2006. Ann Arbor, MI.
2
1
For pre-Medicare individuals, RHI is an
important source of coverage.
Sources of Health Insurance, Age 55-64, 2006
Private, 7%
VA, 2%
Medicaid, 5%
Medicare, 4%
None, 11%
Employer-sponsored
health insurance, 55%
RH I, 16 %
Source: Authors’ calculations from the 2006 HRS.
3
2
What would happen to young retirees if RHI
were no longer available?
• Would individuals instead choose to work longer?
• For those who still decide to retire before age 65, what
health insurance options would they have?
4
3
Access to RHI affects the decision to retire.
Marginal Effect of the RHI Offer on the Probability of Retirement,
Married Individuals Aged 55-64, 1998-2006
5.9 %
64
7.3%
RHI offer age
63
62
8.2%
61
8.3%
4.5%
60
6 .8%
59
9 .8%
58
10.4%
57
56
1.8%
6 .9 %
55
0%
2%
4%
Statistically significant
6%
8%
10%
12%
Not statistically significant
Source: Authors’ calculations from the 1998-2006 HRS.
5
4
The withdrawal of RHI would cause some
people to delay retirement.
Average Conditional Retirement Rate for Those with RHI Access, 1998-2006
30%
26 %
25%
18%
20%
15%
10%
5%
0%
Status quo
RH I elim inated
Source: Authors’ calculations from the 1998-2006 HRS; probabilities weighted by gender and marital status.
6
5
But a large group will still choose to retire
and will lack affordable health insurance.
Workers age 55-64
facing RHI
withdrawal
82%
18%
Keep working
Retire
5%
Access to insurance from
spouse’s current employer
13%
No employer-sponsored alternative
Source: Authors’ calculations from the 1998-2006 HRS.
7
6
For people 65 and over, RHI is an important
source of supplemental coverage.
Source of Coverage, Age 65+, 2006
VA, 4%
Medicare
H MO, 17%
Medicaid, 6 %
Basic
Medicare, 15%
Medigap and
other, 23%
None, 1%
RH I, 27%
Employer-sponsored (working),
7%
Source: Authors’ calculations from the 2006 HRS.
8
7
RHI is more generous than other
supplemental coverage.
Basic
Medicare
(Parts A & B)
RHI
Medicare
Advantage
(HMO)
Medigap
Part D
Standard
Medicare
Medicare costsharing
Prescription
drugs
Extra services
(dental, etc.)
Out-of-pocket
maximum
Source: Authors’ analysis.
9
8
So what would happen if RHI were no longer
available to Medicare beneficiaries?
• What kind of supplemental coverage would people
choose, if any?
• How would their out-of-pocket spending change?
• How would their utilization change?
• Would their health change?
10
9
We can predict the relative likelihood of
choosing an alternative to RHI.
Relative Risk Ratios, Multinomial Logit Results, 1998-2006 (Base Category: Basic Medicare)
1.1*
Fem ale
Non-white
1.4
0.7
0.2
1.2
1.2
One chronic condition
1.3
Two or m ore chronic conditions
1.5
1.1*
1.2
Risk averse
0.0
0.5
Medicare HMO
1.0
1.5
Medigap
* Not statistically significant.
Source: Authors’ calculations from the 1998-2006 HRS.
11
10
About half of RHI holders would select into
Medigap.
Predicted Insurance Choice for RHI Holders from the Multinomial Logit, 2006
RHI is
withdrawn
48%
23%
29%
Basic Medicare
Medicare HMO
Medigap
Source: Authors’ calculations from the 2006 HRS.
12
11
Total spending would fall slightly on
average, but OOP would rise for most.
Mean 2-Year Spending For RHI Holders Before and After Switching, 2006
$12,000
$10,156
$10,000
$8,000
$7,535
$8,848
$8,522
$7,053
$6,698
$6,000
$4,000
$2,000
$0
Before
After
Before
Basic Medicare
Part B prem ium s
After
Medicare H MO
Before
After
Medigap
Part D & other private prem ium s
OOP
Source: Authors’ calculations from the 2006 HRS.
13
12
But OOP changes over an individual’s
remaining lifespan would be small.
Expected PDV of the
change in OOP at age 65
RHI is
withdrawn
Basic Medicare
↑$16,441
Medicare HMO
↓$290
Medigap
↑$6,167
Source: Authors’ calculations from the 2006 HRS; CMS real medical cost growth projections.
14
13
Utilization would generally decrease.
Percent Change in Utilization After Taking Up New Insurance, 2006
-4%
-6%
Prescription drugs
-3%
-15%
-17%
Hospital visits
-5%*
-5% *
Doctor visits
-7% *
-5%*
-20%
-10%
Basic Medicare
Medicare HMO
0%
Medigap
* Not statistically significant.
Source: Authors’ calculations from the 2004-2006 HRS.
15
14
Elimination of RHI would be unlikely to
affect Medicare beneficiaries’ health.
• Prior health is the key driver of current health.
• A change from one type of insurance to another is
unlikely to affect health.
16
15
Conclusion
• Without RHI, some 55-64 year olds would delay
retirement to retain their health insurance coverage.
• Most would still retire early but would likely lack secure
coverage.
• Those over 65 would have to spend somewhat more for
Medigap, but Medicare would still protect health
outcomes.
17
16