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January 11, 2017

Health Reform and Retirement

By Chichun Fang

image of diverse workersBefore the enactment of the Affordable Care Act (ACA), a majority of the U.S. working population received health insurance coverage as a part of their employee benefits through the employer. The link between health insurance coverage and employment has led to what is called 'job lock' or 'job push'&where people stay with or take a job that they would not otherwise do in order to obtain health insurance coverage. One of the major debates about the health insurance reform, hence, is whether it reduces the incentive to work. Some have argued that, by providing alternatives to obtain affordable health insurance coverage, the ACA may affect labor supply to the extent that the degrees of job lock or job push are reduced.

The ACA provided two alternatives to obtain health insurance coverage. First, individuals whose family income is below 400% of the federal poverty level can obtain subsidized health insurance coverage through health insurance marketplaces, which pool the risks and facilitate price competition; second, about 30 states expanded Medicaid to cover those whose household income is below 138% of the federal poverty level. These provisions significantly increased the availability of affordable health insurance coverage other than employer-sponsored policies. For workers who are locked in or pushed to their current jobs, insurance coverage facilitated by exchanges or Medicaid may induce them to retire or shift to part-time work as they no longer need to work full-time to get health insurance.

In a forthcoming paper in the Journal of Gerontology: Social Sciences, SRC Research Professor Helen Levy and her colleagues study the effect of ACA on retirement and part-time work. They asked two research questions. First, was there a 'break' in the trend of labor supply (that is, proportions of people who retire or work part-time) in January 2014, when the ACA went into effect? Second, was the change in labor supply larger in states that expanded Medicare than in states that chose not to change Medicaid eligibility rules? If the ACA affected labor supply by facilitating alternative channels to get health insurance coverage, retirement and part-time work should have increased in all states (due to health insurance coverage obtained in marketplace established in each state) and even more so in states that expanded Medicaid.

Professor Levy and her colleagues studied these questions using the Current Population Survey and focused on U.S. adults aged between 50 and 64. In theory, people in this age range are the most likely to be locked in or pushed to jobs with health insurance coverage&people at younger ages likely are healthier and have lower demands for health care services overall, while people at older ages are already eligible for Medicare. More specifically, they looked at the proportions of people who work part-time or retire between 2008 and 2016. Their results suggest that there were no statistically significant changes in the proportions of retired or part-time workers at the age range following the onset of ACA in 2014; neither were there statistically significant differences between states that expanded Medicaid and those that did not.

In other words, this research found no evidence of ACA affecting retirement or part-time work among adults age 50-64. Such results are consistent with results reported in other papers on this topic: there has not been strong evidence showing the relationship between ACA and decreasing labor supply. This being said, the ACA has only been in effect for 3 years, and the health insurance institutions may change significantly after the inauguration of the new administration. Hence, the long-term effect of ACA on labor market remains to be seen.