Employer-Provided Health Insurance Costs and the Demand for Older Workers

Owen Davis, New School for Social Research

Trends in the demand for older workers have major ramifications for the economic wellbeing of the Baby Boom generation. One hypothesized factor in older-worker labor demand is the cost of employer-provided health benefits, a cost that has grown substantially in recent decades. Since older workers cost substantially more to insure, rising health premiums may put a damper on the demand for workers 50 and older, reducing their wages, employment opportunities, or access to health benefits. A simple economic model of employer benefit provision predicts an unambiguously negative effect of rising health premiums on wages but an ambiguous effect on employment. This study uses matched employer-employee administrative records linked to firm-level data on health insurance offerings to estimate the impacts of rising health premiums on the labor market outcomes of older workers compared to their younger counterparts. The proposed estimation strategy exploits geographic heterogeneity in health costs, with the growth of health insurance premiums instrumented using a comprehensive dataset on U.S. hospital mergers, 2001-2014. Additional estimation strategies are proposed as robustness checks. A final extension of the study uses an experimental linkage between Health and Retirement Study survey data of older workers and firm-level U.S. Census administrative records to test for impacts of rising premiums that may not be captured directly in earnings and employment data, such as subjective survey responses regarding employment experiences.