The Effect of the Affordable Care Act on the Labor Supply, Savings, and Social Security of Older Americans

Authors

Abstract

This paper assesses the effect of the Affordable Care Act (ACA) on the labor supply of Americans ages 50 and older. Using data from the Health and Retirement Study and the Medical Expenditure Panel Survey, we estimate a dynamic programming model of retirement that accounts for both saving and uncertain medical expenses. Importantly, we model the two key channels by which health insurance rates are predicted to change: the Medicaid expansion and the subsidized private exchanges.

Key Findings

  • We construct a retirement model that includes health insurance, uncertain medical costs, a savings decision, a non-negativity constraint on assets, and a government-provided consumption floor. We model the ACA as a change in government insurance provisions rather than the provision of insurance where none existed before.
  • We present evidence that those who cannot keep their employer-provided health insurance when they leave their job tend to remain on their job until age 65.
  • Those who can maintain their insurance after they leave their job tend to exit the labor market earlier. This provides evidence that access to health insurance reduces labor supply.
  • We show differences in both total and out-of-pocket medical spending prior to the enactment of the ACA. We show that average total medical spending is high for all groups: Those with no health insurance do not spend much more out-of-pocket than those who have private insurance.
  • Those uninsured receive health care through a variety of sources such as worker's compensation and default on medical bills, which we refer to as a "consumption floor," which protects low-income individuals against catastrophic medical spending.
  • Those who appear to have the highest resources appear to be those who pay the most for health care, consistent with the view that those with low resources are covered by the consumption floor, whereas those with high resources face the most medical expense risk and might have the largest labor supply responses.

Citation

French, Eric, Hans-Martin von Gaudecker, and John Bailey Jones. 2016. “The Effect of the Affordable Care Act on the Labor Supply, Savings, and Social Security of Older Americans.” Ann Arbor, MI. University of Michigan Retirement Research Center (MRRC) Working Paper, WP 2016-353. http://mrdrc.isr.umich.edu/publications/papers/pdf/wp354.pdf

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Project

Paper ID

WP 2016-354

Publication Type

Working Paper

Publication Year

2016