Is There a Funding Crisis?
Chapter 7: The Future of Public Sector Retiree Health Insurance
Retiree health plans have become an important component of the strategic human resource management policies for employers. All states and many local governments offer their retiring employees the opportunity to remain covered by the employer health insurance plan. Offering this benefit helps state and local government attract and retain high quality employees. Coverage by these plans also influences the timing of retirement. Chapter 2 provided an analysis of the role of retiree health in compensation policy based on economic theory. This discussion showed how employers who offer retiree health plans can provide their workers with greater value for the same cost and thus attract workers who anticipate remaining with the employer for many years. By reducing turnover and increasing job tenure, public employers are able to achieve a more stable labor force. As workers approach retirement, retiree health insurance provides strong incentives on the timing of retirement. If the employee needs a few additional years to qualify for health insurance after retirement, retirement is likely to be delayed. After the worker has sufficient years of service to qualify for the maximum subsidy associated with enrollment in the health plan, the probability of retirement increases. Thus, this benefit will tend to reduce turnover for most of the working career and then increase the likelihood of retirement when eligibility conditions have been satisfied. If a public sector employer desires workers to retire before being eligible for Medicare at age 65, then providing retiree health insurance can be an important factor in encouraging...
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