• Health insurance and labor markets: a job lock update

    The December 2014 issue of the Journal of Health Economics had a special section on health insurance and public sector labor markets. TIE research assistant Garret Johnson worked up brief summaries of papers in that section, which you’ll find here. Below are some observations about job lock based on his summary. (Some prior TIE coverage of job lock is here.)

    Clark and Mitchell analyzed 6,650 respondents to the Health and Retirement Study survey to investigate the relationship between retiree health coverage among public sector employees and private household wealth accumulation. Those covered by retiree health plans reported less wealth accumulated than similar private sector workers without retiree coverage. Controlling for socioeconomic factors and pension funds, federal workers had $116,000 less wealth and state and local government workers had $35,000 less wealth, relative to workers without retiree health insurance.  (The former was statistically significant, the latter not, possibly due to small sample size.)

    It’s plausible that individuals anticipate their retirement health care needs and expenses and accumulate greater savings when they have less coverage for it. One way to accumulate greater savings is to work longer. So, this naturally leads to the idea of job lock: when one does not have retiree health care coverage, one works longer, both for the health insurance available as a worker and in order to accumulate greater savings for health care expenses upon retirement.

    Note that there are two other ways to get this result, however. First, workers without retiree health coverage stay in their jobs for the health benefits (job lock). A consequence of that is that they accumulate greater savings, but they do so without anticipating future health care expenses. It’s just a passive consequence. Second, organizations that aren’t funding retiree health benefits (a form of deferred compensation) may make up for the loss in compensation with higher wages or larger pension contributions, leading to greater savings. Clark and Mitchell controlled for this possibility, however.

    Fitzpatrick found such a job lock effect among Illinois Public School employees. Illinois introduced retiree health coverage (called THRIP) for teachers in 1980 and Fitzpatrick examined the effects on retirement age of doing so. Before THRIP, exit rate of teachers was highest at age 65 (probability of retirement: 0.51). After THRIP, the exit rate of teachers at 65 decreased 40%, (probability of retirement 0.29). Meanwhile, exit rate of teachers at age 55 jumped 81% (from probability of retirement of 0.054 to 0.098).

    These findings suggest that employees shift the timing of their retirement in response to the availability of pre-Medicare retiree health benefits. Again, this could be due to two effects: the availability of coverage without working and the less need to save up for future health care costs.

    Shoven and Slavov found something similar. They used Health and Retirement Study data to examine the effects of retiree health insurance on likelihood of retiring for public and private sector employees. They found that retiree health coverage is associated with a 4.3% increase over 2 years in probability of leaving full-time employment between ages 55-59 (largely shifting to part-time work) and a 6.7% increase over 2 years in probability of leaving full-time employment between ages 60-64 (largely leaving the labor force). Among private sector employees, the effects are smaller, 2.3% and 5.8%, respectively, but the difference between public and private employees is not statistically significant.

    None of this is surprising, and it’s consistent with prior work on job lock.

    @afrakt

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