|Title||A Structural Model of the Effect of Retiree Health Insurance on Early Retirement|
|Year of Publication||2003|
|University||The Pennsylvania State University|
|Keywords||Medicare/Medicaid/Health Insurance, Retirement Planning and Satisfaction|
This study contributes to the existing literature by pursuing two complementary goals: (1) To estimate the effect of planning to retire early on access to employer provided retiree health insurance (ERHI); and (2) to produce a consistent estimate of the effect of ERHI on the probability of early retirement, allowing for the possibility that access to retiree health insurance is an endogenous variable. The empirical analysis uses the data from the first five Waves of the Health and Retirement Study (HRS), which were conducted every other year from 1.992 to 2000. The analysis focuses on men who were less than 65 in 2000, full-time workers, and had insurance as active workers in 1996. The retirement model is specified with three sequential equations: Planning to retire early in 1992, access to retiree health insurance in 1996, and retirement between 1996 and 2000. Not only demographic and socioeconomic characteristics of men, but also those of spouses to estimate the structural retirement model are included in all three equations. Alternative estimation techniques are used including univariate probit, bivariate probit, and trivariate probit models. The results vary significantly across estimation techniques. Planning to retire early encourages access to ERHI in the bivariate and trivariate models, while it does not in the univariate model. The effect of access to ERHI on early retirement is positive and significant in all three models. However, the effect is larger for bivariate and trivariate models compared to the univariate model. The trivariate model provides evidence that correlations between error terms across the structural equations are significant. The correlation between errors in the access equation and the retirement equation is negative. Therefore, it is likely that previous literature underestimated the effect of access to retiree health insurance on early retirement. One important implication for public policy is that policy initiatives such as a Medicare buy-in or health insurance tax credits that increase access to retiree health insurance are likely to have large effects on retirement decisions. In other words, the unintended effects on labor force participation of policies that increase access to retiree health insurance might be greater than previous research has suggested.
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|Short Title||A Structural Model of the Effect of Retiree Health Insurance on Early Retirement|