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  • March 16, 2020

Will work for insurance


Most young Americans plan on retiring in their early 60s, based on one survey. But they will keep working until they’re 65 or older if they’re like their parents and grandparents.

That’s in part because of the need to keep employer-provided insurance, according to a paper in the February issue of the American Economics Journal: Economic Policy.

Author Gal Wettstein found that workers without life-time prescription drug benefits sharply decreased their hours once the government started providing coverage to retirees in 2006.

In 2006, Medicare Part D was introduced to give every American over the age of 65 access to subsidized prescription drug insurance. Before then, most workers had to rely on their employers for coverage, creating an incentive to stay in the labor force.

To estimate the impact of this new policy, Wettstein used a triple-differences design that compared individuals with retiree health insurance up to age 65 to those with insurance for life, before and after age 65, before and after 2006.

Figure 4 from his paper shows how Part D led to a sharp drop in people over 65 working full time.



Figure 4 from Wettstein (2020)


The x-axis in each panel indicates age; the y-axis indicates the share of full-time work. (The vertical dashed line shows the age at which Americans are eligible for Medicare, 65 years old.) 

Each blue square represents the rate of full-time work for a particular age before Part D was introduced. The red circles are the same except after Part D went into effect. 

Panel A reveals a sharp decrease at the Medicare eligibility age both before and after 2006 among those without lifetime insurance from an employer. 

But the drop is larger after 2006 when individuals have access to Part D. This sharper decline is highlighted in Panel B, in which the post-2006 values are adjusted down so that among ages 55-64 their average is the same as the pre-2006 average.

In contrast, there is no sharp decline in Panel C: individuals with lifetime insurance before and after 2006 gradually decrease their hours as they age.

Using the full triple-differences design, Wettstein found that Part D decreased full-time work by 8.4 percentage points among 65 to 68 year-olds, a 24 percent reduction.

The author’s estimate is strong evidence that employer-provided insurance locks many American workers into the labor market.