1 The Implications of Declining Retiree Health Insurance Courtney Monk and Alicia H. Munnell Center for Retirement Research at Boston College 11 th Annual Joint Conference of the Retirement Research Consortium The National Press Club Washington, DC August 11, 2009

2 Access to retiree health insurance (RHI) is falling, and its cost is rising. 1 Percent of Large Employers Offering RHI to Active Employees, Selected Years, Sources: Gary Claxton, Bianca DiJulio, Benjamin Finder, and Marian Jarlenski. Employer Health Benefits 2008: An Annual Survey, Menlo Park, CA: Kaiser Family Foundation; and authors’ calculations from the University of Michigan. Health and Retirement Study (HRS), Ann Arbor, MI. Median Monthly RHI Premiums, (2006 Dollars)

3 For pre-Medicare individuals, RHI is an important source of coverage. 2 Source: Authors’ calculations from the 2006 HRS. Sources of Health Insurance, Age 55-64, 2006 Employer-sponsored health insurance, 55%

4 What would happen to young retirees if RHI were no longer available? 3 Would individuals instead choose to work longer? For those who still decide to retire before age 65, what health insurance options would they have?

5 Access to RHI affects the decision to retire. 4 Source: Authors’ calculations from the HRS. Marginal Effect of the RHI Offer on the Probability of Retirement, Married Individuals Aged 55-64, RHI offer age Statistically significant Not statistically significant

6 5 Source: Authors’ calculations from the HRS; probabilities weighted by gender and marital status. The withdrawal of RHI would cause some people to delay retirement. Average Conditional Retirement Rate for Those with RHI Access,

7 Retire Keep working 82% 13% 5% But a large group will still choose to retire and will lack affordable health insurance. 6 Workers age facing RHI withdrawal Source: Authors’ calculations from the HRS. Access to insurance from spouse’s current employer No employer-sponsored alternative 18%

8 For people 65 and over, RHI is an important source of supplemental coverage. 7 Source of Coverage, Age 65+, 2006 Source: Authors’ calculations from the 2006 HRS. Employer-sponsored (working), 7%

9 8 Basic Medicare (Parts A & B) RHI Medicare Advantage (HMO) MedigapPart D Standard Medicare Medicare cost- sharing Prescription drugs Extra services (dental, etc.) Out-of-pocket maximum RHI is more generous than other supplemental coverage. Source: Authors’ analysis.

10 So what would happen if RHI were no longer available to Medicare beneficiaries? 9 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?

11 10 * Not statistically significant. Source: Authors’ calculations from the HRS. Relative Risk Ratios, Multinomial Logit Results, (Base Category: Basic Medicare) We can predict the relative likelihood of choosing an alternative to RHI. * * Medicare HMO Medigap

12 11 Basic MedicareMedicare HMO Medigap 23% 29% 48% Source: Authors’ calculations from the 2006 HRS. Predicted Insurance Choice for RHI Holders from the Multinomial Logit, 2006 About half of RHI holders would select into Medigap. RHI is withdrawn

13 Total spending would fall slightly on average, but OOP would rise for most. 12 Mean 2-Year Spending For RHI Holders Before and After Switching, 2006 Source: Authors’ calculations from the 2006 HRS.

14 But OOP changes over an individual’s remaining lifespan would be small. 13 Expected PDV of the change in OOP at age 65 Source: Authors’ calculations from the 2006 HRS; CMS real medical cost growth projections. Basic Medicare Medicare HMO Medigap RHI is withdrawn ↑ $16,441 ↓ $290 ↑ $6,167

15 Utilization would generally decrease. 14 * Not statistically significant. Source: Authors’ calculations from the HRS. Percent Change in Utilization After Taking Up New Insurance, 2006 * * * * Basic Medicare Medicare HMO Medigap

16 15 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.

17 Conclusion 16 Without RHI, some 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.