Impact of Retiree Health Plans on Faculty Retirement Decisions

April 2004

This paper considers the effect of retiree health insurance coverage on retirement behavior of academics. I survey the types of retiree health insurance coverage that are offered at colleges and Universities in the U.S. and perform simple statistical analyses to determine if there is a significant correlation between the existence of retiree health plans and the average age of retirement. Building on past work of Rust and Phelan and Blau and Gilleskie, I develop a life cycle model that is specially calibrated to the health status, income profiles, and job characteristics of academics (particularly the job security offered by tenure). I investigate the causal impact of retiree health insurance coverage via experiments with the calibrated life cycle model that predict by how much academics will delay retirement if retiree health insurance coverage is removed completely, or reduced in generosity. I also perform cost/benefit calculations from the standpoint of an academic institution as to whether it is better to offer more generous retiree health insurance coverage or offer special bonuses and "window plans" top encourage older academics to retire.