Retiree Health Benefits Research Articles

Postacute Care for Medicare Advantage Enrollees Who Switched to Traditional Medicare Compared With Those Who Remained in Medicare Advantage

Medicare Advantage (MA) plans receive capitated per enrollee payments that create financial incentives to provide care more efficiently than traditional Medicare (TM); however, incentives could be associated with MA plans reducing use of beneficial services. Postacute care can improve functional status, but it is costly, and thus may be provided differently to Medicare beneficiaries by MA plans compared with TM. To estimate the association of MA compared with TM enrollment with postacute care use and postdischarge outcomes. This was a cohort study using Medicare data on 4613 hospitalizations among retired Ohio state employees and 2 comparison groups in 2015 and 2016. The study investigated the association of a policy change with use of postacute care and outcomes. The policy changed state retiree health benefits in Ohio from a mandatory MA plan to subsidies for either supplemental TM coverage or an MA plan. After policy implementation, approximately 75% of retired Ohio state employees switched to TM. Hospitalizations for 3 high-volume conditions that usually require postacute rehabilitation were assessed. Data from the Medicare Provider Analysis and Review files were used to identify all hospitalizations in short-term acute care hospitals. Difference-in-difference regressions were used to estimate changes for retired Ohio state employees compared with other 2015 MA enrollees in Ohio and with Kentucky public retirees who were continuously offered a mandatory MA plan. Data analyses were performed from September 1, 2019, to November 30, 2023. Enrollment in Ohio state retiree health benefits in 2015, after which most members shifted to TM. Received care in an inpatient rehabilitation facility, skilled nursing facility, or home health, or any postacute care; the occurrence of any hospital readmission; the number of days in the community during the 30 days after hospital discharge; and mortality. The study sample included 2373 hospitalizations for Ohio public retirees, 1651 hospitalizations for other Humana MA enrollees in Ohio, and 589 hospitalizations for public retirees in Kentucky. After the 2016 policy implementation, the percentage of hospitalizations covered by MA decreased by 70.1 (95% CI, -74.2 to -65.9) percentage points (pp), inpatient rehabilitation facility admissions increased by 9.7 (95% CI, 4.7 to 14.7) pp, use of only home health or skilled nursing facility care fell by 8.6 (95% CI, -14.6 to -2.6) pp, and days in the community fell by 1.6 (95% CI, -2.9 to -0.3) days for Ohio public retirees compared with other Humana MA enrollees in Ohio. There was no change in 30-day mortality or hospital readmissions; similar results were found by comparisons using Kentucky public retirees as a control group. The findings of this cohort study indicate that after a change in retiree health benefits, most Ohio public retirees shifted from MA to TM and received more intensive postacute care with no significant change in measured short-term postdischarge outcomes. Future work should consider additional measures of postacute functional status over a longer follow-up period.

How Do Retiree Health Benefit Promises Affect Municipal Financing?

How Do Retiree Health Benefit Promises Affect Municipal Financing?

OPEB Accounting and Teacher Diversity

Despite extensive literatures documenting the importance of teacher diversity and teacher compensation, few studies explore relationships between the two. Fewer still examine effects of governmental accounting standards, even though these standards evolve regularly and could have substantial implications for how school districts allocate resources. I use staff- and district-level data from California to explore the effects on the teaching force of a change in accounting standards that required districts to recognize the costs of retiree health benefits (and other postemployment benefits, or OPEBs) as employees earned them. By making the true costs of this deferred compensation more apparent, this reform may have changed teachers’ incentives or encouraged districts offering such benefits to shift expenditures toward other aspects of compensation or working conditions more highly valued by relatively novice teachers (e.g., higher salaries). I illustrate how such reforms could impact the diversity of the teaching force by showing how teachers of different races and genders were likely to be differentially affected by deferred compensation policies due to differences in previous experience (and thus proximity to retirement). However, comparative interrupted time series analyses do not show that districts affected by the change in accounting standards saw their teaching staffs diversify at different rates than other districts. Thus, while the costs of deferred compensation are likely an important—and underdiscussed—factor in determining the diversity of the teaching force, accounting reforms alone are unlikely to moderate their impacts on the race and gender composition of teachers, at least in the medium term.

Risk-Sharing in Retiree Medical Benefits

Retiree medical care expenditures in the United States are growing at a rapid rate, while and the retired portion of the population is increasing. This puts pressure on government and employer programs providing retiree health care coverage. Retirees also face increasing challenges in gaining access to affordable coverage, particularly before eligibility for Medicare. In this chapter we assess prospects for US retiree health coverage and the challenges, risks, and roles of employers, Medicare, and retirees in providing and financing it. We discuss both traditional approaches to retiree health benefits, where the employer assumes most risk, and new defined contribution approaches, where significant risk is shifted to the retiree. We also review government benefits for retirees including new Medicare prescription drug benefits. We model future retiree health care costs and opportunities to save before retiring, highlighting public policy obstacles and issues for employer-provided retiree health benefits.

Prefunding Public Sector Retiree Health Benefits: The California Example

Most state and local governments have historically funded their retiree health care benefits on a pay-as-you-go basis. This has resulted in massive amounts of unfunded liability in many states including the five largest states of California, Florida, Illinois, New York and Texas. Recent accounting and reporting rules changes by the Governmental Accounting Standards Board has made these liabilities more visible and has resulted in more attention being paid to this problem. California has adopted a plan to pay off its huge unfunded retiree health benefit liability by 2044. It might serve as an example for other states with similar problems.

The Effects of Tax and Expenditure Limits on Municipal Pension and Opeb Funding during the Great Recession

The Great Recession of 2008–09 caused an array of fiscal challenges for state and local governments in the US, including the underfunding of pensions and retiree health benefits (Joyce, 2013). It is estimated that in 2009 the 61 largest cities in the US had unfunded pension and retiree health benefits liabilities equal to $217 billion (The Pew Charitable Trusts, 2013). Given these constraints, we are primarily interested in understanding the effects of institutional factors, more specifically the role of tax and expenditure limitations (TELs), on pension and other post-employment benefit (OPEB) funding. Recent studies have examined the effects of pension liabilities on bond ratings (Martell, Kioko and Moldogaziez, 2013), the effects of state budget stabilization funds on pension contributions (St. Clair, 2013) and political and institutional effects on pension plan management (Gehl, Willoughby and Bell 2013); (Chen, Ebdon, Kriz and Laforge, 2013). What is less understood is the role played by institutional structures such as form of government and state-imposed tax and expenditure limitations on pension or OPEB funding before, during and after the recession. Our findings suggest that municipal TELs are statistically associated with OPEB funding, meaning that municipalities with stricter TELs had lower OPEB funding ratios. Just as importantly, we find that during this period, municipalities with mayor-council forms confronted with stricter TELs had better funded pensions and OPEBs than in cities with similar TELs but with manager-council forms of government.

After Tackett: Incomplete Contracts for Post-Employment Healthcare

This is a story about a union and a private sector employer who repeatedly negotiated collective bargaining agreements which referenced side contracts which provided retirees with post-employment healthcare benefits. In the early decades of their relationship neither the union nor the employer appear to have given any thought to whether or not these retiree health benefits in fact vested—i.e. were promised to retirees at no cost for the remainder of their lives. By the 1980s and certainly the 1990s however, as health care costs soared and life expectancy expanded, both parties continued to regularly re-negotiate agreements that were silent as to this critical term. With time, predictably enough, the employer decided to eliminate this increasingly expensive benefit; the union objected vigorously on the ground that the benefit was promised to current retirees “for life” and could not be unilaterally terminated. Recently, in M & G Polymers v. Tackett, the Supreme Court considered the effect of this silence and unanimously concluded that courts should not construe ambiguous contract provisions in order to create lifetime promises especially in the context of labor contracts where obligations typically cease when the agreement terminates.

Accuracy of Long-Range Actuarial Projections of Health Care Costs

The Office of the Actuary, mandated to provide projections of future medical spending for use by the U.S. Medicare and Medicaid programs, publishes forecasts that have been widely used by private firms and government budget officials as a baseline for expected long-run premium trends and to estimate liabilities for retiree health benefits. Although these projections have been made publicly available since 1986, they have not yet been subject to systematic evaluation by an external reviewer. This article develops a method for assessment of both short- and long-run accuracy and applies it to the 17 sets of projections made public over the last 25 years. The more recent set of projections (1998–2010) incorporating lagged macroeconomic effects appear to be more accurate than the older (1986–1995) projections that relied more heavily on demographic cost of illness trends. The average annualized error of the forecasts is approximately 0.5–1% per year, whether assessed over a span of one, two, or 10 years. Projecting “excess” growth in health spending (the rise in the share of wages or GDP) tends to be more accurate than forecasting nominal or real spending per capita.

Accuracy of Long Range Actuarial Projections of Health Care Costs

The Office of the Actuary, mandated to provide projections of future medical spending for use by the U.S. Medicare and Medicaid programs, publishes forecasts that have been widely used by private firms and government budget officials as a baseline for expected long run premium trends and to estimate liabilities for retiree health benefits. Although these projections have been made publicly available since 1986, they have not yet been subject to systematic evaluation by an external reviewer. This paper develops a method for assessment of both short and long-run accuracy, and applies it to the 17 sets of projections made public over the last 25 years. The more recent set of projections (1998-2010) incorporating lagged macroeconomic effects appear to be more accurate than the older (1986-1995) projections that relied more heavily on demographic cost of illness trends. The average annualized error of the forecasts is approximately 0.5% - 1% per year, whether assessed over a span of one, two or ten years. Projecting “excess” growth in health spending (the rise in the share of wages or GDP) tends to be more accurate than forecasting nominal or real spending per capita.

Will the Average Retirement Age Continue to Increase?

Using Health and Retirement Study (HRS) data, this paper examines how changes in individual workers’ past and present pension coverage, retirement incentives in Social Security, and retiree health insurance have contributed to retirement decisions for the 1931-1953 birth cohorts. It then uses these findings to project retirement behavior for the 1955-1987 cohorts in the Survey of Income and Program Participation (SIPP). A key assumption is that younger cohorts will have no defined benefit (DB) pensions or retiree health coverage in their future jobs. A key limitation is the assumption of a stable relationship in each successive cohort between each factor and labor market decisions.The paper found that: The decrease in DB pension coverage from previous jobs and the decline in retiree health coverage between the HRS and SIPP cohorts each push the retirement age up by approximately one year, all else equal. The one-year increase in Social Security’s Full Retirement Age is associated with a 0.3-year increase in the retirement age, all else equal. After accounting for other differences between the HRS and SIPP cohorts, the average retirement age is projected to rise by one year over the next three decades, from age 61.8 to 62.8. The policy implications of the findings are: We anticipate that changes in pensions, retiree health benefits, and Social Security that are already in motion will continue to increase, albeit slightly, the average retirement age. Nonetheless, policies aimed at extending retirement ages may still be necessary, given that a one-year retirement age increase is likely to be insufficient to permit future cohorts to achieve a sufficient standard of living.

The Tradeoff Between Health and Wealth in Retirement Decisions

In the United States, because access to health insurance is tied to employment, the availability of retiree health insurance interacts with post-retirement income to shape the retirement decision. This paper uses administrative data from the California Department of Education to estimate the rate at which individuals’ trade off post-retirement health insurance benefits for a longer retirement and for retirement income benefits. The sensitivity of retirement to the return to working in terms of post-retirement health insurance is estimated. This estimate is then compared to the sensitivity of retirement to pension generosity in order to determine the implied rate at which individuals substitute between health insurance and pension benefits. The two estimation methods used leverage plausibly exogenous benefit variation driven by the sharp features of the retiree benefit programs. The results imply that individuals will delay retirement to become eligible for retiree health benefits, but that the effect is small relative to the effect of pension benefits on retirement timing.

Why Do Boomers Plan to Work So Long?

Recent changes in retirement trends and patterns have raised questions about the likely retirement behavior of baby boomers, the large cohort born between 1946 and 1964. This study compares the retirement expectations of workers ages 51 to 56 in 2004 (who were born between 1948 and 1953, the leading edge of the baby boom) and 1992 (born between 1936 and 1941). Data come from the Health and Retirement Study. Work expectations increased significantly over the period. Between 1992 and 2004, the mean expected probability of working full-time past age 62 among workers ages 51 to 56 increased from 47 percent to 51 percent. The increase was even more rapid for the expected mean probability of full-time work after age 65, which grew from 27 percent to about 33 percent over the period. Controlling for other factors, self employment, education, and earnings increased work expectations at older ages, while defined benefit pension coverage, employer-sponsored retiree health benefits, and household wealth reduced expectations. Lower rates of retiree health insurance offers from employers, higher levels of educational attainment, and lower rates of defined benefit pension coverage accounted for most of the increase between 1992 and 2004 in expected work probabilities after ages 62 and 65. These trends suggest that the boomers will remain at work longer than the previous generation. The recent uptick in average retirement ages appears to be the leading edge of a new long-term trend. Lengthier careers will likely promote economic growth, increase government revenue, and improve individual financial security at older ages.

Does retiree health insurance encourage early retirement?

The strong link between health insurance and employment in the United States may cause workers to delay retirement until they become eligible for Medicare at age 65. However, some employers extend health insurance benefits to their retirees, and individuals who are eligible for such retiree health benefits need not wait until age 65 to retire with group health coverage. We investigate the impact of retiree health insurance on early retirement using employee-level data from 54 diverse firms that are clients of Towers Watson, a leading benefits consulting firm. We find that retiree health coverage has its strongest effects at ages 62 through 64. Coverage that includes an employer contribution is associated with a 6.3 percentage point (36.2%) increase in the probability of turnover at age 62, a 7.7 percentage point (48.8%) increase in the probability of turnover at age 63, and a 5.5 percentage point (38.0%) increase in the probability of turnover at age 64. Conditional on working at age 57, such coverage reduces the expected retirement age by almost three months and reduces the total number of person-years worked between ages 58 and 64 by 5.6%.

Accuracy and Range of Actuarial Projections of Health Care Costs

The Office of the Actuary is mandated to provide projections of future medical spending for use by the U.S. Medicare and Medicaid programs, and which are widely used by private firms and government budget officials to create forecasts of health spending and retiree health benefits. Although these projections have been made publicly available since 1986, they have not yet been subject to a systemic evaluation by an external reviewer. This paper develops a method for assessment of both short and long-run accuracy, and applies it to all 17 sets of projections made public over the last 25 years. It appears that the more recent set of projections (1998-2010) incorporating lagged macroeconomic effects are more accurate than the older (1986-1995) projections that relied more heavily on demographic cost of illness trends. The average error of the forecasts averages about 0.5%-1% per year, whether assessed over a span of one, two or ten years. Projecting “excess” growth in health spending (the rise in the share of wages or GDP) tends to be more accurate than forecasting nominal or real spending per capita.

Sticky Ages: Why is Age 65 Still a Retirement Peak?

When Social Security’s Full Retirement Age (FRA) increased to age 66 for recent retirees, the peak retirement age increased with it. However, a large share of people continue to claim their Social Security benefits at age 65. This paper explores two potential explanations for the “stickiness” of age 65 as a claiming age: Medicare eligibility and workers’ lack of knowledge about their future Social Security benefits. First, we analyze the impact of Medicare eligibility by comparing two groups – one has an FRA of exactly 65; the other, between age 65 and 2 months and age 66. We find that the group with later FRAs who do not have access to retiree health benefits through their employer are more likely to claim Social Security at age 65. We interpret this finding as evidence that Medicare eligibility persuades more people to retire, because they can begin receiving federal health coverage. Individuals without access to retiree health insurance at work are 7.5 percentage points more likely to retire soon after their 65th birthdays and are 5.8 percentage points less likely to delay retirement until the FRA than those with that insurance. This result fits into extensive research showing that access to health insurance is an important component of the retirement decision. On the question of whether misinformation about Social Security benefits may drive individuals to claim at age 65, we find that some individuals are unable to accurately forecast their retirement benefits. However, our analysis suggests that there is no relationship between this confusion and the age 65 peak for claiming Social Security.

Why Are Retirement Benefits in the United States So Complicated?

Most of us focus on one or a few retirement income programs and a single retiree health benefit plan at a time, as benefit professionals, policy makers, current or future recipients of these benefits or scholars. We seldom step back and view the larger picture. We often see the trees and miss the forest. And in doing so, we also miss the extraordinary complexity and interrelatedness of the numerous laws and programs that comprise the U.S. retirement benefit structure. This article is an overview of retirement benefit laws and programs. It examines their origins, evolution and, to some extent, their current requirements. It portrays the collage of retirement benefits that now exists in an effort to provide perspective.

Pensions at Risk, Retiree Health Benefits at Risk: Retirement at Risk?

Pensions at Risk, Retiree Health Benefits at Risk: Retirement at Risk?

Pensions at Risk, Retiree Health Benefits at Risk: Retirement at Risk?

Pensions at Risk, Retiree Health Benefits at Risk: Retirement at Risk?

Retiree Health Benefits as Deferred Compensation

Are early retiree health benefits (RHBs) a form of deferred compensation binding workers to an employer? Most employers who offer RHBs offer them only to workers who have ten or more years of tenure and have reached age fifty-five. Accordingly, workers in firms offering RHBs have an incentive to stay with a firm in the years before they attain eligibility for RHBs, and a greater incentive than otherwise to retire thereafter. The authors test for such a pattern of incentives by examining the age-specific relationship between workers’ eligibility for RHBs and retirement. The findings suggest that workers in RHB-offering firms are less likely to retire at ages fifty and fifty-one than similar RHB-ineligible workers. Also, RHB-eligible workers aged sixty and sixty-one are more likely to retire than similar RHB-ineligible workers. These results are consistent with RHBs acting as part of a delayed payment contract of the kind described by Lazear.

Unexpected retirement from full time work after age 62: consequences for life satisfaction in older Americans

Recent policy shifts in the United States have resulted in an increase in the number of older workers remaining in the labor force. Increases in the retirement age for receiving full Social Security benefits coupled with declining pension funds and the erosion of employer retiree health benefits, mean that current cohorts of older workers may fully expect to work longer than previous generations. Yet, working longer may not always be possible due to health problems, outdated skills, economic insecurity, and competing obligations. We examine the consequences of unmet expectations for full time work after age 62 for life satisfaction in a nationally representative sample of older Americans. With longitudinal data from the Health and Retirement Study (1998-2008), this paper uses repeated measures of expectations for later life work among a cohort of Americans (N=1684) gathered prospectively over an eight year period, and examines the effects of unfulfilled expectations on subsequent life satisfaction. Using generalized growth mixture modeling three latent classes of individuals were identified with distinct trajectories of later life work expectations (low expectations, high expectations, and neutral expectations for full time work after age 62). A majority of men had generally high expectations to work full time past age 62, whereas the majority of women reported a low probability of working full time after age 62. When comparing expectations to actual full time work past age 62, we found no effects of unmet expectations for women. But men with less job stability (reflected by shorter job tenure and lower incomes) generally had high expectations to work longer, and their life satisfaction scores were significantly lower when these expectations were not realized. The hazards of missed expectations for later life work have consequences for subjective well-being in older adults.