Health Insurance and the Labor Supply Decisions of Older Workers: Evidence from the U.S. Department of Veterans Affairs

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This paper exploits a major mid-1990s expansion in the U.S. Department of Veterans Affairs health care system to provide evidence on two important and interrelated U.S. policy issues: retirement policy and universal health care.  Using data from the Current Population Survey, we compare the labor market behavior of older veterans and non-veterans before and after the VA health benefits expansion to test the impact of public health insurance on labor supply.  We find that older workers are significantly more likely to stop working or to move from full- to part-time work after receiving access to non-employer based insurance.  Older workers are also more likely to leave self-employment, a result inconsistent with “job-lock” effects of employer-based insurance, but consistent with a positive income effect from new access to public insurance.  Some relatively disadvantaged subpopulations, however, may increase their labor supply after gaining greater access to public insurance, consistent with complementary positive health effects of health care access for these groups…