RICHARD L. KAPLAN, University of Illinois College of Law
Email: RKAPLAN@LAW.UIUC.EDU
NICHOLAS J. POWERS, affiliation not provided to SSRN
JORDAN ZUCKER, DLA Piper US LLP, Chicago

This article examines the increasingly troubled state of employer-provided health benefits for retirees. The availability of such benefits is a major determinant of both the timing of retirement and the financial security of those who retire. Despite the signal importance of these benefits to current and prospective retirees, employers have been steadily eroding their value and in many cases, eliminating these benefits outright. Such actions are often catastrophic for the retirees affected, especially if they are not yet eligible for Medicare.

This article begins by explaining the economic pressures that have precipitated this unfortunate development, including the increasing cost of health care generally. But much of the decline in retiree health benefits is attributable to financial accounting requirements that required employers to disclose the projected costs of these benefits. These accounting requirements have recently been extended to state and local government employers, and another wave of broken promises may lie just ahead.

The article next examines the extensive litigation regarding the erosion and/or termination of retiree health benefits, focusing on the Employee Retirement Income Security Act (ERISA). Claims that retirees have 'vested' rights to such benefits are analyzed in both the unionized and nonunionized employment contexts, as well as claims of breach of fiduciary duty and estoppel. In short, ERISA has largely failed to protect the reasonable expectations of retirees concerning their post-employment health benefits.

The article then turns to alternative approaches that retirees might consider, including continuation coverage from their former employer, individually obtained health insurance, and health savings accounts. Finding serious problems with each of these approaches, the article considers recent legislative proposals to extend Medicare to early retirees, noting the impact of such an extension on existing employer health benefit programs for retirees and on individuals’ retirement timing decisions.

STEFANIE BEHNCKE, University of St. Gallen - SEW-HSG, Institute for the Study of Labor (IZA)
Email: stefanie.behncke@unisg.ch

This paper investigates the effects of retirement on various health outcomes. Data stem from the first three waves of the English Longitudinal Study of Ageing (ELSA). With this informative data, non-parametric matching methods can be applied to identify causal effects. It is found that retirement significantly increases the risk of being diagnosed with a chronic condition. In particular, it raises the risk of developing a cardiovascular disease and being diagnosed with cancer. Estimates also indicate that retirement has quite diverse effects for different individuals.

PAUL FRONSTIN, Employee Benefit Research Institute (EBRI)
Email: FRONSTIN@EBRI.ORG

This paper presents Employee Benefit Research Institute (EBRI) estimates from the U.S. Census Bureau’s March 2008 Current Population Survey (CPS) on the health insurance status of the near elderly, adults ages 55-64. EBRI’s estimates reveal that adults ages 55-64 were one of two groups - the other was children - most likely to have health insurance in 2007. That year, 12 percent of adults ages 55-64 were uninsured, compared with 31.9 percent of adults ages 21-24, 26 percent of those ages 25-34, and 23.5 percent of all younger adults. There were 4 million adults ages 55-64 without health insurance in 2007, accounting for 9 percent of the 45 million individuals under age 65 who were uninsured. The fact that adults ages 55-64 are the least likely age group of adults to be uninsured is usually overlooked when considering that employers have substantially cut back on employment-based health benefits for early retirees. It is also important to understand the health insurance status of individuals ages 55-64 because of access and affordability issues with the nongroup market. The erosion of retiree health insurance may ultimately change retirement patterns as employees nearing retirement age postpone their decision to retire upon learning that, without a job, they may not be able to obtain health insurance coverage or afford health care services that are not covered by insurance. The health insurance status of the population nearly eligible for Medicare also has implications for the Medicare program, to the degree that any increase in the uninsured population entering Medicare results in higher costs to the program.

STEVEN NYCE, Watson Wyatt Worldwide
Email: steven.nyce@watsonwyatt.com
SYLVESTER J. SCHIEBER, Watson Wyatt Worldwide - Watson Wyatt & Company
Email: SYL_SCHIEBER@WATSONWYATT.COM

In summer 2009, health care reform seems almost within reach. President Barack Obama is urging the Congress to pass bills, and both the House and Senate are trying to deliver. Everyone agrees on the necessity of reform, but that’s where the agreement ends. Most of the ongoing discussions about who should pay for health care legislation have proposed employer coverage mandates, limitations on health benefit tax preferences, taxation of health insurers and 'play-or-pay' provisions, all of which would distribute the costs of expanded coverage among employers and, through them, to their workers in the form of slower wage growth. An important — but often overlooked — point in these discussions is that health costs paid by employers are part of the compensation paid to workers. Compensation includes wages, employer contributions to Social Security and Medicare, the cost of any health insurance coverage for workers and their dependents, and contributions to any pension plans, 401(k) plans and other capital accumulation programs. While many of the proposals for health reform are looking to employers to fund much of the cost, there has been little focus on the links among wages, compensation and the cost of employer-sponsored health and retirement benefits. No one has talked much about how higher health benefit costs to employers would affect the paychecks workers bring home. The analysis in this report projects five scenarios that illustrate the importance of controlling health costs. In our baseline scenario, we manage to cut health benefit cost inflation rates roughly in half and do not expand health insurance coverage. In that scenario, wage growth rates are projected to be roughly equivalent to those of the 1990s for the next couple of decades. Under an assumption that we control health cost inflation but expand coverage by means of an employer play-or-pay mandate, the effect on wage growth patterns would be negative at the bottom of the earnings distribution and mildly negative in the middle of the earnings distribution for a while. But after 2015, wage growth rates would return to the healthier levels of the 1990s. Bringing health costs under control allows more resources for expanded coverage. If we expanded health insurance coverage but our current health cost inflation rate continued unabated, the higher overall costs would result in falling wages at the bottom of the earnings spectrum and very slow wage growth on up the earnings distribution. These dismal wage outcomes would persist over at least the next couple of decades, possibly longer. The next scenario considers the real possibility that health inflation increases as a result of expanded insurance coverage offered under reform. Looking back at the implementation of Medicare, this is exactly what happened. This scenario combines expanded health care coverage with accelerated health inflation rates. In this case, the higher costs would drive disposable wages downward across most of the earnings spectrum, although the declines would be steepest for lower-earning workers. These depressed conditions would persist over the entire projection period. Fixing what is broken in our health care system is about more than expanding health insurance coverage or deciding whether taxing employer-sponsored health benefits is good or bad policy. No matter how health care reform is financed — whether by employers, who pass the costs on to workers, or taxpayers — the bill will be unaffordable unless costs are brought under control. Our current health care system is embedded with incentives that encourage providers to dispense an ever-expanding menu of treatments and medications, even where there is little evidence of their efficacy. Our health care system already costs 40 percent to 100 percent more than its counterparts in other developed countries and is growing twice as fast.

JONGMOOK CHOE, University of Texas at Austin - Lyndon B. Johnson School of Public Affairs
Email: cjm@mail.utexas.edu

This paper investigates the relationship between union affiliation rate and health insurance coverage in the United States. Previous studies with individual survey data indicate that union effect on health insurance coverage is strong. Using state-level panel data for the period 2000-2007, this paper finds a strong positive relationship between union affiliation rate and private health care coverage. Also, union affiliation rate is negatively related to government-provided health insurance coverage. These results are robust after controlling for other possible determinants.

ANNE BEESON ROYALTY, Indiana University Purdue University at Indianapol
Email: royalty@iupui.edu

The strong link between employment and health insurance in the U.S. means that ever rising health care costs may have serious consequences for labor market outcomes such as job creation, employment flows, earnings, and hours of work. In this paper, we analyze the effect of health care costs on these employment outcomes, using a dataset compiled to address these issues at the MSA level. Some caution in interpretation is necessary here due to the imprecision of the estimates but overall we argue that the patterns we find suggest a negative effect on employment, with the impact occurring mostly through reductions in new hires. There is also some evidence that workers are not leaving jobs with higher health insurance premiums which may support the job-lock hypothesis. Last, we find significant and negative effects of higher costs on hours of work, illustrating that the link between health insurance and employment can affect workers along many dimensions.

JENNIFER SCHULTZ, University of Minnesota - Duluth
Email: JENNIFER.S.SCHULTZ-2@TC.UMN.EDU
DAVID J. DOORN, University of Minnesota - Duluth
Email: ddoorn@d.umn.edu

The link between rising employer costs for health insurance benefits and demand for part-time workers is investigated using non-public data from the Medical Expenditure Panel Survey- Insurance Component (MEPS-IC). The MEPS-IC is a nationally representative, annual establishment survey from the Agency for Healthcare Research and Quality (AHRQ). Pooling the establishment level data from the MEPS-IC from 1996-2004 and matching with the Longitudinal Business Database and supplemental economic data from the Bureau of Labor Statistics, a reduced form model of the percent of total FTE employees working part-time is estimated. This is modeled as a function of the employer health insurance contribution, establishment characteristics, and state-level economic indicators. To account for potential endogeneity, health insurance expenditures are estimated using instrumental variables (IVs). The unit of analysis is establishments that offer health insurance to full-time employees but not part time employees. Conditional on establishments offering health insurance to full-time employees, a 1 percent increase in employer health insurance contributions results in a 3.7 percent increase in part-time employees working at establishments in the U.S.

HENDRIK JÜRGES, University of Mannheim - Mannheim Research Institute for the Economics of Aging (MEA), German Institute for Economic Research (DIW Berlin)
Email: juerges@mea.uni-mannheim.de

I compare education-, income-, and wealth-related health inequality using data from 11 European countries and the US. The health distributions in the US, England and France are relatively unequal independent of the stratifying variable, while Switzerland or Austria always have relatively equal distributions. Some countries such as Italy dramatically change ranks depending on the stratifying variable.