Do Retiree Health Benefits Cause Early Retirement?

I examine whether the availability of early retiree health benefits increases the likelihood of early retirement. Although there is a positive association between the availability of retiree health benefits and early retirement, this association could be driven by other factors that are correlated with retiree health benefits and affect retirement decisions. I build a simple model to show that individuals in poor health and with poor outside insurance options value retiree health benefits more. I then use variation in health status and outside insurance options to examine, within a difference-in-differences framework, whether the estimated correlation between retiree health benefits and early retirement reflects demand for health insurance. My results indicate that the effect of retiree health benefits is not statistically significantly larger for those in poor health, but that it is larger for those who lack insurance from other sources, particularly from their spouses. I conclude that retiree health benefits do increase the hazard of early retirement and that demand for health insurance among the near-elderly is not closely tied to health status.