Happy Together or Home Alone: A Structural Model of the Role of Health Insurance in Joint Retirement

Published: 2013


As the baby-boom generation approaches retirement age, most families facing retirement today are dual-worker couples who coordinate retirement choices. The availability of retiree health insurance is a crucial factor that can influence the timing of couples’ retirement decisions. By reducing the risk of catastrophic medical expenditure, retiree health insurance can induce people both a covered worker and his spouse indirectly to retire, or it can keep the spouse of someone needing care at home in the labor to maintain coverage. This paper presents a dynamic structural model of older couples’ saving, retirement and insurance choices. This model not only accounts for multiple channels through which health insurance can affect retirement decisions and the interdependence of health insurance coverage among married couples, but also household financial incentives and the sources of uncertainty for couples approaching retirement. Unlike other papers, I model two spouses’ health transitions to be determined jointly. Also, I control for the initial conditions associated with the observed eligibility for employer-provided health insurance. I will estimate the model using data from the Health and Retirement Study (HRS) and the Medical Expenditure Panel Survey (MEPS). These estimates will allow me to predict the effects of changes in health insurance options, for example, resulting from The Affordable Care Act, on older couples’ labor supply and welfare.

Key Findings


    Dina Guo