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Early Retirement, Courtesy of Obamacare



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NPR has happened upon a great Obamacare success story, or so it seems: 

Lela Petersen of Flagler, Colo. . . . is a small business owner with a very big health insurance bill. But thanks to the health law, she expects that bill will be cut by more than half in January.

Petersen is 57, and her husband, Mike, is 60. They have some pre-existing conditions. He has diabetes. She has a back injury. The HMO policy they’ve carried since 1992 has risen over the years to $1,950 per month, just for the two of them.

“When you pay $1,950 for insurance you might as well forget retirement,” says Petersen says. “There’s just no way.” Five years ago, she was planning on an early retirement, but she didn’t anticipate health insurance costing as much as the rest of her bills combined.

At the beginning of October she checked out Colorado’s insurance exchange and found the exact same policy from the same insurer for only $832 a month. “It’s dropping us down about $1,100 a month. We can retire. We can go fishing. We can actually see a future,” says Petersen.

Becoming part of an insurance pool helped Petersen reduce her cost. The federal law also forbids insurance companies from charging more for pre-existing conditions. That saved her a lot. And federal tax credits brought the cost down even further.

While I’m sure the Petersens have worked very hard throughout their lives and deserve a comfortable retirement, but let’s examine what this story actually represents: Two people who can easily obtain insurance on the individual market, despite their preexisting conditions, have to pay a lot for the health care they consume, but an amount they can afford at their income levels – but not at their expected level of retirement income. Because Obamacare provides direct subsidies from the federal fisc, and indirect subsidies from the higher premiums paid by younger people and healthier people, their rates have dropped low enough that they can now close their small business and live off of their retirement savings — at the expense of others.

Lots of decisions we all make involve implicit tax subsidies and social costs. But early retirement, needless to say, doesn’t really have much to do with the stated intent of Obamacare — expanding insurance to people who can’t get it or can’t afford it. The NPR story acknowledges that this is a rather odd side benefit of the law, and notes that we don’t know just how widespread it will be yet: 53 percent of employees in one survey of American workers in 2012 said they stay in their jobs for more years than they want to ensure access to affordable health insurance. These are many people’s highest-saving, highest-earning, and most productive years; enabling them to draw down their savings rather than work hampers economic growth. In a post-industrial society, is there any reason to provide a subsidy for retirement at age 59? Most Americans would presumably agree there is not, which is why almost no one is suggesting we lower the starting age for federal retirement programs. But that’s in effect what Obamacare’s elaborate system has accomplished — while also providing implicit subsidies to people who happen to have health-care problems, some of which, like diabetes, are influenced by their personal choices.

Obamacare’s incentive for early retirement is just one aspect of an issue of great importance for the law overall: Does access to public health insurance cause people to drop out of the labor force? There’s been some rigorous study of this question at the low end — providing free insurance to low-income households — but the evidence is inconclusive. Examinations of two great natural experiments — Oregon’s random expansion of its Medicaid program and Tennessee’s forced contraction of its program — came to opposite conclusions. In Tennessee, enough people joined the labor force after they lost access to a form of Medicaid that the study’s authors think the ACA’s national expansion of free and heavily subsidized insurance could cause almost 1 million people to leave the workforce. But in Oregon, a study didn’t find reliable evidence that expanding Medicaid had an impact on employment or earnings. Now, cold economic logic would suggest that the Tennessee example is what we’d expect generally — publicly available insurance reduces the incentive to work, so marginal workers should drop out of the workforce; but there are good empirical data going both ways.

The phenomenon that causes people to go to work for a reason like having access to health insurance is called “labor lock” — and it’s not an unalloyed good thing. It’s good to have people participating in the workforce — both for them and for the economy (most of the time) — but if it means they won’t leave a job with health insurance to start their own firm or to take a job that may suit them better that lacks it, then it’s a bad thing. (Of course, the ACA, by setting minimum coverage requirements, killing catastrophic plans for most, raising premiums, etc., will make it harder for some people to find insurance in those latter two situations.) But when the question, which is going to be raised by Obamacare’s generous implicit and explicit subsidies to middle-income people in their 50s and 60s, is between staying in the workforce or retiring, it’s almost definitely not good to encourage them to leave. Unless, that is, we should invest in encouraging Americans to retire earlier.



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