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©2007 Trustees of Boston College, Center for Retirement Research.. Reprinted with permission.

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Abstract

Because most workers receive health benefits from their employers, retirement often disrupts health insurance coverage. This brief examines the availability and cost of health insurance at ages 55 to 64 and changes in coverage after retirement. Today most workers with employer health benefits retain their coverage when they retire early, although their required premium contributions have increased sharply over the past 10 years. In the future, however, steady declines in the share of younger workers with access to retiree health benefits may jeopardize income security for the next generation of retirees.

Introduction

Because most workers receive health benefits from their employers, retirement often disrupts health insurance coverage. Some employers offer health insurance to retirees, but many firms are cutting retiree health benefits by passing more costs to retirees or eliminating benefits altogether. Few alternatives exist. Private nongroup coverage is generally quite expensive, and few people in their 50s and early 60s qualify for publicly financed benefits. Many workers who cannot obtain retiree benefits from their own employers or their spouses’ employers delay retirement to age 65, when Medicare coverage begins.

This brief examines the availability and cost of health insurance coverage at ages 55 to 64 and changes in coverage after retirement. Today most workers with employer health benefits retain their coverage when they retire early, although their required premium contributions have increased sharply over the past ten years. In the future, however, steady declines in the share of younger workers with access to retiree health benefits may jeopardize income security for the next generations of retirees.

Sources of Health Insurance Coverage

In 2004 employers provided health insurance coverage for about seven of every ten adults near traditional retirement ages. Among adults aged 55 to 64, 37 percent received insurance coverage from their own current employers and 15 percent received coverage from their spouses’ current employers. Another 14 percent received benefits from their own former employers and 5 percent received coverage from their spouses’ former employers. Most people with coverage from former employers received retiree health benefits, which continue until age 65 and sometimes supplement Medicare benefits at older ages. A few people, however, received only federally mandated continuation coverage from their former employers. The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) requires employers with health plans and 20 or more employees to offer coverage to separating workers for up to 18 months (or 29 months for disabled workers), but these workers must pay up to 102 percent of the group rate.

Some older people without employer health benefits who are too young for Medicare turn to the private nongroup market or government for coverage. About 7 percent of adults aged 55 to 64 purchased private nongroup insurance in 2004 and did not receive employment-based benefits. Relying upon the private nongroup market at older ages has drawbacks, including the high price of coverage (especially for those in less-than-perfect health), the limited benefits provided by many plans, and the possibility that coverage may be denied. Before age 65, adults without dependent children (and those who are not pregnant) can qualify for Medicare or Medicaid only if they are blind ordisabled. Medicaid benefits are also subject to strict income and asset tests. In 2004, about 8 percent of adults aged 55 to 64 received Medicaid or Medicare coverage and another 2 percent received military health benefits.

The overall uninsured rate is not particularly high at older ages. About 12 percent of adults aged 55 to 64 lacked health insurance in 2004. By contrast, about 15 percent of adults aged 45 to 54 and 19 percent of adults aged 35 to 44 lacked coverage.3 However, lack of coverage creates special difficulties at older ages, because older adults are more likely than younger adults to develop health problems and need expensive medical care. In fact, median health care expenditures in 2004 were almost four times as high at ages 55 to 64 than at ages 35 to 44.

Uninsured rates are relatively steep among older people with limited incomes and health problems, groups arguably in greatest need of health insurance. For example, 28 percent of adults aged 55 to 64 with incomes below the federal poverty level lacked insurance in 2004, compared with 6 percent of those with incomes in excess of four times the poverty level. Whereas 16 percent of those in fair or poor health were uninsured, only 9 percent of those in excellent or very good health lacked coverage.

Richard W. Johnson is a principal research associate at the Urban Institute and a research associate of the Center for Retirement Research at Boston College.

Note: This report is available in its entirety in PDF format.

The nonpartisan Urban Institute publishes studies, reports, and books on timely topics worthy of public consideration. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders.

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