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The Implications of Declining Retiree Health Insurance

Courtney Monk and Alicia H. MunnellCenter for Retirement Research at Boston College

11th Annual Joint Conference of the Retirement Research ConsortiumThe National Press Club

Washington, DCAugust 11, 2009

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Access to retiree health insurance (RHI) is falling, and its cost is rising.

$34

$53 $51

$77

$134

$100

$0

$25

$50

$75

$100

$125

$150

Age 55-64 Age 65+

200220042006

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Percent of Large Employers Offering RHI to Active Employees, Selected Years, 1988-

2006

Sources: Gary Claxton, Bianca DiJulio, Benjamin Finder, and Marian Jarlenski. Employer Health Benefits 2008: An Annual Survey, 2008. Menlo Park, CA: Kaiser Family Foundation; and authors’ calculations from the University of Michigan. Health and Retirement Study (HRS), 2002-2006. Ann Arbor, MI.

Median Monthly RHI Premiums, 2002-2006 (2006 Dollars)

66%

46%40% 38% 35%

0%

10%

20%

30%

40%

50%

60%

70%

1988 1991 1995 2003 2006

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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

None, 11%

Medicare, 4%

RHI, 16%

Private, 7%VA, 2%

Medicaid, 5%

Employer-sponsored health insurance, 55%

4

What would happen to young retirees if RHI were no longer available?

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• 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 1998-2006 HRS.

Marginal Effect of the RHI Offer on the Probability of Retirement,

Married Individuals Aged 55-64, 1998-2006

6.9%

1.8%

10.4%

9.8%

6.8%

4.5%

8.3%

8.2%

7.3%

5.9%

0% 2% 4% 6% 8% 10% 12%

55

56

57

58

59

60

61

62

63

64

RH

I off

er

ag

e

Statistically significant

Not statistically significant

6

5

Source: Authors’ calculations from the 1998-2006 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, 1998-2006

26%

18%

0%

5%

10%

15%

20%

25%

30%

Status quo RHI eliminated

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RetireKeep working

82%

13%5%

But a large group will still choose to retire and will lack affordable health insurance.

6

Workers age 55-64 facing RHI withdrawal

Source: Authors’ calculations from the 1998-2006 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.

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Source of Coverage, Age 65+, 2006

Source: Authors’ calculations from the 2006 HRS.

None, 1%

Basic Medicare, 15% Medigap and

other, 23%

RHI, 27%

Medicare HMO, 17%VA, 4%

Medicaid, 6%

Employer-sponsored (working), 7%

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8

Basic Medicare (Parts A &

B)

RHIMedicare

Advantage (HMO)

Medigap Part 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.

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

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• 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?

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10

* Not statistically significant.Source: Authors’ calculations from the 1998-2006 HRS.

Relative Risk Ratios, Multinomial Logit Results, 1998-2006 (Base Category: Basic Medicare)

We can predict the relative likelihood of choosing an alternative to RHI.

1.2

1.5

1.2

0.2

1.4

0.7

1.3

1.1

1.2

1.1

0.0 0.5 1.0 1.5

Risk averse

Two or more chronic conditions

One chronic condition

Non-white

Female

*

*

Medicare HMO Medigap

12

11

Basic Medicare

Medicare 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

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Total spending would fall slightly on average, but OOP would rise for most.

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Mean 2-Year Spending For RHI Holders Before and After Switching, 2006

Source: Authors’ calculations from the 2006 HRS.

$7,535$7,053

$8,522

$6,698

$8,848$10,156

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

Before After Before After Before After

Basic Medicare Medicare HMO Medigap

Part B premiums Part D & other private premiums OOP

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But OOP changes over an individual’s remaining lifespan would be small.

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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

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Utilization would generally decrease.

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* Not statistically significant.Source: Authors’ calculations from the 2004-2006 HRS.

Percent Change in Utilization After Taking Up New Insurance, 2006

-6%

-5%

-5%

-3%

-7%

-17%

-5%

-15%

-4%

-20% -10% 0%

Doctor visits

Hospital visits

Prescription drugs

*

*

**

Basic Medicare Medicare HMO Medigap

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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.

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Conclusion

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• Without RHI, some 55-64 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.