Employee Health Insurance

The near-elderly face important decisions about work and retirement. While almost three-quarters of individuals between the ages of fifty-five and sixty-one were employed in 1996, less than half of those age sixty-two to sixty-four were working, and many were only working part-time. Some of this early retirement is by choice, but some of it is because of declining health status or employer cutbacks. Almost one-third of the near-elderly that were not working in 1996 reported illness or disability as the reason they were not working. (The breakdown of those not working was: 47.2 percent retirement, 30.4 percent ill or disabled, 18.9 percent caring for home or family, 1.5 percent could not find work, and 2 percent other factors.)

Since the majority of individuals receive health insurance from their employers, leaving the labor force before age sixty-five (the age at which an individual becomes eligible for Medicare) may result in a loss of health insurance coverage. Fewer than 40 percent of large employers offered health coverage for retirees in 1998, compared to 60 to 70 percent during the 1980s. In addition, retirees often have to share the cost of employer-provided insurance by paying a higher premium than workers; in 1995 a retired worker's contribution to employer-provided health insurance was, on average, $2,340—$655 more per year than the contribution of active workers. For individuals who do not receive employer-provided health care if they retire, purchasing insurance in the private market is often quite expensive. A General Accounting Office survey of selected health insurance companies found that a healthy sixty-four year old male can expect to pay between $100 and $300 per month more in premiums than a healthy twenty-five year old male, while an older male with high health risks may pay between $300 and $600 more per month than his younger, healthy counterpart—if the high-risk man can find an insurance company that will offer him any coverage at all. As a result, older workers who would like to retire may find that the loss of health insurance prevents them from being able to retire.

There have been some government regulations that attempt to ease the burden for those who lose their employer-provided insurance, either because they choose to retire early, have health conditions that necessitate their early retirement, or lose their job for other reasons. The Consolidated Omnibus Budget Reconciliation Act of 1985, often referred to as COBRA, allows workers and their families that have left jobs providing health insurance to continue to purchase the group policy for up to eighteen months. However, the employee must pay the entire premium amount plus a 2 percent administrative fee. Another major piece of legislation, the Health Insurance Portability and Accountability Act of 1996 (HIPAA), helps to ease the transition if an individual changes jobs or switches from employer-provided health care to individually purchased health care. HIPAA limits insurance company exclusions for pre-existing conditions, prohibits discrimination against employees based on health status, and guarantees that individuals who have been receiving health insurance are able to purchase individual insurance policies (although it does not limit the premiums the insurance company can charge for the policy).

Despite these government efforts to make it easier for workers to switch jobs or retire early by removing barriers related to health insurance, numerous studies find that having employer-provided health insurance has a large impact on the retirement and work decisions of the near-elderly. Bridgette Madrian and Nancy Dean Beaulieu (1998) reviewed nine economic studies that used different data sets and methodologies and found that having retiree health benefits or the option of purchasing continuing coverage (such as COBRA) significantly increases the likelihood than an individual will retire early. For example, one of these studies, by Jonathan Gruber and Madrian, found that the availability of continuing coverage (through COBRA and various state laws that applied prior to COBRA) could explain as much as 60 percent of the rise in retirement for males fifty-five to sixty-four years old during the 1980s. However, while legislation such as COBRA and HIPAA may give the near-elderly more choices for when to retire, having health insurance tied to employers may still provide a large barrier to job changes or early retirements. Jeannette Rogowski and Lynn Karoly (2000) found that older male workers (in their late fifties and early sixties) with health benefits that continue after retirement are 68 percent more likely to retire than those who have employer-based coverage that only covers current workers.