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Policies that provide postretirement health benefits to the near-elderly may encourage some workers to retire early

With the leading edge of the baby boom generation now turning 50, the number of near-elderly men and women will rise dramatically in coming years. By 2010 there will be almost as many Americans aged 55 to 64 as those aged 65 and older. Although people over age 65 have access to health insurance through Medicare, the near-elderly have very limited options for affordable health insurance other than employment-related coverage. However, there has been a strong downward trend in recent years in the generosity of retiree health benefits offered by employers, and few other routes to insurance exist for people in this age group.

These concerns have led policymakers to consider a number of initiatives aimed at increasing access to health insurance for the near-elderly, such as proposals to allow people younger than age 65 to buy into Medicare. However, critics charge that such policies will induce the near-elderly to retire early at a time when the labor force is shrinking due to retirement of the baby boom generation. A recent study agrees. The study, which was supported in part by the Agency for Healthcare Research and Quality (HS07048), found that older male workers with retiree health benefits were 68 percent more likely to retire than colleagues who would lose employment-based health insurance upon retirement. Even the level of premium cost sharing in retirement relative to the cost while working did not appear to influence the retirement decisions of older workers.

Ultimately, policymakers will need to balance the benefits of increased access to postretirement health insurance against the labor force effects associated with such policies, conclude Jeannette Rogowski, Ph.D., and Lynn Karoly, Ph.D., of RAND in Washington, DC. They developed a model to analyze the role of health insurance in the retirement decisions of older workers. The researchers used data from the 1992 and 1996 waves of the Health and Retirement Survey to estimate how access to postretirement health insurance and the cost of that insurance affected the retirement behavior of older male workers.

More details are in "Health insurance and retirement behavior: Evidence from the health and retirement survey," by Drs. Rogowski and Karoly, in the Journal of Health Economics 19, pp. 529-539, 2000.

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