Health Insurance and Early Retirement Plans: Evidence from the Affordable Care Act

Employer sponsored retiree benefits are an important source of health insurance for millions of retirees, but offer rates have been steadily declining since the early 1990s. Access to affordable insurance during retirement can play an important role in the labor supply decisions of older adults. In this study, I examine the impact of the 2010 Affordable Care Act (ACA) on the retirement plans of older adults. The ACA includes several provisions that are expected to significantly increase access to affordable insurance that is not tied to employment. Using data from the Health and Retirement Study, I find that the ACA decreased the subjective probability of working past age 62 by 5.6 percentage points, representing a 9.9 percent decline, among persons without employer sponsored retiree coverage relative to persons with employer sponsored benefits. On average, individuals expect to retire about 3.6 to 7.2 months earlier due to the ACA. Persons who are somewhat unsure whether they will continue to work past age 62 are the most responsive to the policy change while individuals who are very sure that they will either retire by age 62 or will continue to work are less responsive, suggesting that the ACA also reduced uncertainty regarding the timing of retirement.