The Effect of Health Reform on Retirement

Transcription

1 The Effect of Health Reform on Retirement Helen Levy Thomas Buchmueller Sayeh Nikpay University of Michigan 17 th Annual Joint Meeting of the Retirement Research Consortium August 6-7, 2015 Washington, DC The NBER Retirement Research Center, the Center for Retirement Research at Boston College (CRR), and the University of Michigan Retirement Research Center (MRRC) gratefully acknowledge financial support from the Social Security Administration (SSA) for this conference. The findings and conclusions are solely those of the authors and do not represent the views of SSA, the University of Michigan, or MRRC.

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3 Introduction Most Americans obtain health insurance from an employer (Smith and Medalia 2014). The link between employment and health insurance may discourage retirement before age 65 the age of near-universal eligibility for Medicare because workers fear they will not be able to obtain comparable coverage if they retire. Early retirees find it difficult to obtain coverage because most do not qualify for Medicaid, and private coverage purchased directly from an insurance company is often unaffordable or unavailable, especially for older individuals or those with pre-existing health conditions. This disincentive to retirement is one manifestation of the phenomenon of job lock (Gruber and Madrian 2002). The Affordable Care Act (ACA) makes alternatives to employer-sponsored health insurance available through two channels. First, the ACA establishes state-level health insurance marketplaces ( exchanges ) for non-group coverage, which pool risk, encourage price competition between insurers, and administer substantial subsidies for individuals with family income below 400 percent of poverty. Combined with new rules that prohibit insurers from using health information to set premiums or deny coverage, and limit the allowable variation in premiums with regard to age, exchanges should substantially lower the cost of non-group coverage for early retirees. Second, about half of all states are taking advantage of an ACA provision that allows them to expand Medicaid coverage to low income adults (<138% of the poverty level, or about $22,000 for a couple in 2014). Taken together, these provisions imply a dramatic increase in the availability of affordable alternatives to employer-sponsored coverage for workers nearing retirement. Most observers expect this to reduce labor supply among workers nearing retirement (Congressional Budget Office, 2014). In this paper, we present evidence from the 2014 Current Population Survey on trends in retirement through We find no evidence of an increase in retirement among individuals ages 55 to 64 in 2014 compared with We also do not find any differential trend in retirement in states that have chosen to expand Medicaid under the Affordable Care Act compared with those that have not. Background on health insurance and retirement A large literature analyzes the effect of health insurance on the retirement decision (For a recent summary, see Nyce et al. 2013; for a summary of the older literature, see Gruber and Madrian 2002.) Nearly all of work in this area finds that the availability of insurance that is not contingent upon one s own continued work which could be from Medicare, as a dependent on a

4 spouse s policy, from coverage intended for early retirees, or from COBRA significantly increases the probability of retirement. A related literature uses exogenous changes in eligibility for public insurance coverage to estimate the impact of these changes on labor supply, not necessarily restricting attention to older workers and the retirement decision. Studies that do estimate effects separately for older workers generally find significant labor supply responses to changes in public insurance coverage (Garthwaite, Gross, and Notowidigdo 2014; Dague, DeLeire and Leininger 2014; Guy et al. 2012; Sanzenbacher 2014; Heim and Lin 2014), although studies of the labor supply response of the general population to expansions of health insurance do not (Baicker et al. 2014). To summarize: the existing literature strongly suggests that the availability of public health insurance significantly reduces labor supply, particular for individuals nearing retirement. Background on the Affordable Care Act The Affordable Care Act includes provisions to expand both private coverage and Medicaid intended to reach at least some of the 50 million individuals who were uninsured 2010 when the law was enacted (DeNavas-Walt, Proctor, and Smith 2011). The Medicaid expansions target very lowincome childless adults. Prior to the ACA, states covered low-income children and their families through Medicaid and the State Children s Health Insurance Program (CHIP). However, states typically did not provide coverage for nonelderly childless adults (Kaiser Family Foundation 2013). The ACA created substantial new federal funding for states to extend coverage to all adults under 138 percent of the federal poverty level. Although the ACA originally required states to extend their Medicaid programs to this population, a June 2012 Supreme Court ruling essentially made the expansion optional. As of July 2015, 30 states and the District of Columbia have decided to implement the Medicaid expansion, with ongoing debates about the expansion in one other state. 1 In the majority of the states opting to expand their Medicaid programs, the new eligibility rules went into effect on in January The law also implements a set of private insurance market reforms, such as prohibiting plans from denying coverage or increasing premiums based on an applicant s pre-existing condition. It also establishes new health insurance marketplaces, also known as exchanges, which are intended to facilitate individuals plan choices by providing a website where enrollees can easily compare their 1 Source: downloaded on July 20, 2015.

5 plan options. Importantly, the law provides premium subsidies for families with incomes between 100 and 400 percent of poverty to purchase coverage through the marketplaces, provided that they do not already have access to Medicaid or coverage through an employer. An individual s share of the premium is determined on a sliding scale, with the individual s cost capped at between 2 and 9.5 percent of family income. Data The main data for our analysis come from the basic monthly Current Population Survey (CPS). In the CPS, there are between 15,000 and 18,000 respondents ages 55 to 64 in each month. Respondents are asked about their labor force status in the week prior to the survey, and this is the basis for categorizing people as retired or not. Supplemental analyses are from the 2012 Health and Retirement Study. The full HRS sample in 2012 included just over 20,000 individuals; 6,810 are ages 55 to 64 and form the basis for our analysis. Results HRS results: How big is the pool of workers likely to be affected? We begin by analyzing the current insurance arrangements for workers approaching retirement, since only those who currently have employer-sponsored insurance that would not cover them in the event of retirement would plausibly alter their labor supply in response to the availability of alternative health insurance coverage. To put it another way: workers who are already uninsured or have the option of retiree coverage are, by definition, not working just to get health insurance. 2 In order to do this we tabulate the sources of actual and potential health insurance coverage reported by workers ages 55 to 64 in the 2012 HRS: coverage from their own employer that they would lose if they retired (the group most affected by new non-employer options), coverage from their own employer that would continue to cover them if they retired, coverage from a former employer, coverage from a spouse s current or former employer, privately purchased individual coverage, Medicare, Medicaid, or no coverage. Respondents are further grouped by education. Overall, about 36 percent of respondents have coverage from their own employer that they would lose if they retired. This fraction is lower for those with the least education; only 15 percent of respondents who did not finish high school are in this group, and half of these respondents are uninsured. 2 It is possible that new means-tested subsidies for coverage would reduce the labor supply of these workers in the same way that any means-tested transfer program reduces work incentives.

6 CPS results: Do we see any increase in retirement in 2014? Figure 1 shows the fraction of individuals ages 55 to 64 who are retired in 2008 through 2014, separated into states that did and did not expand Medicaid under the ACA. Regression models confirm that there is a slight downward trend over time in this fraction, and that there is no break in this trend in either expansion or non-expansion states. Although the full regression results are not reported here, Figure 1 includes dashed lines reflecting 95 percent confidence intervals around each of the trend lines. The main takeaway from this figure is that there is no increase in retirement in 2014 either in absolute terms or in expansion states relative to non-expansion states. The margin of error is about plus or minus one percentage point so that we can effectively rule out the possibility that the fraction of individuals in this age range who are retired increased by more than a percentage point. Although all of our analyses will echo this result, there are a number of other ways to present the data that are interesting. One of these is to look at retirement-age profiles; that is, the probability of retirement as a function of single year of age, using the cross-sectional CPS data. This analysis (results not shown here) reveals that retirement-age profiles in 2013 and 2014 were essentially the same as each other, and that this was true in expansion and non-expansion states. This supports the idea that the expansion of insurance coverage did not lead to an increase in retirement. Finally, because aggregate comparisons of expansion versus non-expansion states may mask differences between these states, we carry out a number of state-by-state comparisons. We chose four pairs of neighboring states in which (1) in 2013, both states had no access to Medicaid for childless adults, regardless of their income level and (2) beginning in 2014, one state in the pair expanded income eligibility to 138 of poverty under the ACA while the other did not. Our comparison pairs are: Maryland (expansion) and Virginia (non-expansion), Illinois (expansion) and Missouri (non-expansion), Kentucky (expansion) and Tennessee (non-expansion), and North Dakota (expansion) and South Dakota (non-expansion). Figures are not included here for this analysis; but, as was the case in the aggregate comparison of expansion versus non-expansion states, we find no evidence of an increase in retirement in the expansion state in 2014 relative to its non-expanding comparison state. Discussion We find no evidence of an increase in retirement in 2014, the first year in which the Affordable Care Act s coverage reforms were widely available. It may still be the case that over time, retirement patterns may shift in response to these significant new incentives. Several factors

7 may have led prospective retirees to exercise caution in relying on ACA coverage in First, there were well-publicized obstacles to enrollment in health insurance exchanges in the first open enrollment period in fall 2013/winter Second, prospective retirees may have been prudently waiting to see whether the ACA reforms survived significant legal challenges that were not resolved until a US Supreme Court ruling (King v. Burwell) in June With these barriers removed, the ACA s reforms will become more firmly established and more familiar, and the availability of subsidized coverage that is not tied to employment may result in increases in early retirement over the next decade. References Baicker, Katherine, Amy Finkelstein, Jae Song, and Sarah Taubman. "The Impact of Medicaid on Labor Market Activity and Program Participation: Evidence from the Oregon Health Insurance Experiment." The American Economic Review 104, no. 5 (2014): Congressional Budget Office. (2014) The budget and economic outlook: 2014 to Congressional Budget Office, Washington D.C. Dague, Laura, Thomas DeLeire, and Lindsey Leininger. The Effect of Public Insurance Coverage for Childless Adults on Labor Supply. No. w National Bureau of Economic Research, DeNavas-Walt, C., B. P. Proctor, and J. C. Smith. US Census Bureau. Current Population Reports, Income, Poverty, and Health Insurance Coverage in the United States: Published September Garthwaite, Craig, Tal Gross, and Matthew J. Notowidigdo. "Public Health Insurance, Labor Supply, and Employment Lock." The Quarterly Journal of Economics 129, no. 2 (2014): Gruber, Jonathan, and Brigitte C. Madrian. (2002) Health insurance, labor supply, and job mobility: a critical review of the literature. National Bureau of Economic Research working paper, No. w8817 Guy, Gery P., Adam Atherly, and E. Kathleen Adams. "Public health insurance eligibility and labor force participation of low-income childless adults." Medical Care research and review 69, no. 6 (2012): Heim, Bradley, and Lee-Kai Lin. "Does Health Reform Lead to an Increase in Early Retirement? Evidence from Massachusetts." Evidence from Massachusetts (August 19, 2014) (2014). Kaiser Family Foundation. Medicaid: A Primer. March Web. Nyce, Steven, Sylvester J. Schieber, John B. Shoven, Sita Nataraj Slavov, and David A. Wise. "Does retiree health insurance encourage early retirement?" Journal of public economics 104 (2013): Sanzenbacher, Geoffrey T. What we know about health reform in Massachusetts. Center for Retirement Research at Boston College, Issue Brief Smith, Jessica C. and Carla Medalia, U.S. Census Bureau, Current Population Reports, P60-250, Health Insurance Coverage in the United States: 2013, U.S. Government Printing Office, Washington, DC, 2014.

8 Figure Fraction of year olds who are retired Source: Basic monthly CPS, 2005 through /1/2014 ACA coverage begins Did not expand Medicaid Expanded Medicaid