Retiree health-care coverage can save money, report argues.
Position | News & Numbers |
Employers ultimately save money by offering employees retiree health insurance, according to an October 2013 study by the National Bureau of Economic Research. Looking at retirement data on Illinois public school employees, NBER determined that the total net lifetime savings of retiree health insurance is $16,591 per employee. Revoking retiree health-care insurance wouldn't save the employer lifetime costs of $77,000; rather, they would pay approximately $17,000 more per employee.
How does that work? By encouraging older workers to retire an average of two years sooner.
According to the paper, titled "Retiree Health Insurance for Public School Employees: Does it Affect Retirement?" Illinois public school employees retired sooner when a retiree health insurance program was introduced. Offering health insurance that is contingent on retirement decreases the number of older workers because the income effect of subsidized health insurance discourages work, and it doesn't preclude the employee from taking a job with another employer after retirement. When employees retire sooner, the employer saves money.
The employer's share of the current annual premium for the workers in the study was $5,208 per retiree aged 55 to 64, and less for older workers, assuming that the state continues its 50 percent premium subsidy, according to the report. The median retiree who is offered health insurance leaves at age 57 with 25 years of service, rather than at 59 with 27 years of service without insurance. This early retiree faces an actuarial penalty for retiring early, putting the present discounted value...
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