Retiree Health Insurance for Public School Employees: Does it Affect Retirement?

Abstract

Despite the widespread provision of retiree health insurance for public sector workers, little attention has been paid to its effects on employee retirement. This is in contrast to the large literature on healthinsurance-induced "job-lock" in the private sector. I use the introduction of retiree health insurance for public school employees in combination with administrative data on their retirement to identify the effects of retiree health insurance. As expected, the availability of retiree health insurance for older workers allows employees to retire earlier. These behavioral changes have budgetary implications, likely making the programs self-financing rather than costly to taxpayers.

Extending Work Life: Can Employers Adapt When Employees Want to Delay Retirement?

“…Employer-provided health insurance for retirees until they reach age 65 can be an important incentive to retire prior to reaching age 65. Fitzpatrick (2014) shows how retiree health insurance for public school employees enhances the retirement incentives embedded in the defined benefit pension plan. The decline in coverage by defined benefit plans and the sharp drop in the proportion of firms providing retiree health insurance have altered the incentives for early retirement.…”