1. The Decline in Employer- Sponsored 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.

2. 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?

3. 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

4. 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

5. 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

6. Full-Time Retirement Before Age 65 Retirement it = α + β1 RHIoffer i1 + β2 HealthShock it + β3 RHIoffer i1 *HealthShock it + X it + Year t + ε Covariates include: –Respondents and spouses demographics and health –Household income and assets –Pension information, industry and occupation

7. Estimated Effect of RHI Offer on Full-Time Retirement *significant at 1%, ** 0.1% Standard errors are adjusted for the complex survey design and clustered at the individual level. OLSPercent Change RHI Offer0.0721**35% [0.0099] Acute Health Shock0.0979*49% [0.0375] Acute*Offer-0.0048-2% [0.0492] R squared0.1446 N13,386

8. Out-of-Pocket Medical Care Spending Out-of-pocket spending after controlling for demographics, baseline health status and year Percentile treatment effect = spend p (offer = 1) – spend p (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

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10. 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

11. 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