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Health Tracking

TRENDS

The Near-Elderly, Early Retirees, And Managed Care

The near-elderly also may hold the key to Medicare reform. The more likely reform approaches tend to rely on managed care in one form or another. The "premium-support" model envisions competition among Medicare-approved health plans. At least some of these plans will likely be managed care entities. The "defined-contribution" model envisions Medicare beneficiaries purchasing health insurance plans with something like a voucher. Managed care plans would almost certainly be active players in such a market. Even tinkering with the existing Medicare program may result in more seniors’ choosing a managed care plan for broader coverage.²

A key question for both the private near-elderly market and Medicare reform is the willingness of this group to accept managed care options. On the one hand, studies of workers’ choice of health plans have routinely found that older workers are much more likely to opt for fee-for-service (FFS) coverage.³ This suggests that the near-elderly will be much less receptive to managed care plans offered through employer retiree plans. It also implies that proposals to reform Medicare along managed care lines will face much opposition from aging baby boomers.

On the other hand, the past decade has seen dramatic change in the nature of employer coverage. Recent work by Jon Gabel and colleagues found that in 2001 only 7 percent of insured workers were not in a managed care plan.⁴ It may well be that older workers have also adopted managed care and when given a choice, choose coverage through a health maintenance organization (HMO) or preferred provider organization (PPO). If so, the group-insurance market for the near-elderly may increasingly resemble that of younger workers, and baby boomers may not oppose managed care–based reforms to Medicare. In fact, we may find folks actively clamoring for a Medicare program that looks much more like the plans of their working years.

This paper has three objectives. First, it reports on trends in health insurance coverage among the near-elderly over the last half of the 1990s. It focuses on the extent of active-worker and retiree coverage, individually purchased coverage, coverage through a spouse, and the lack of coverage. Second, it examines the extent to which older workers with employer-sponsored active and early retiree coverage have a choice of plans, face premium contributions, and enroll in managed care. We pay particular attention to the characteristics of people with HMO, PPO, and FFS coverage. Finally, we explore the transitions from active to retiree coverage by the near-elderly. We focus on the extent to which early retirees continue with or switch out of the form of coverage they had as active workers.

Data Sources

 
The data for this study were drawn from the second, third, and fourth waves of the Health and Retirement Survey (HRS) sponsored by the National Institute on Aging.⁵ The HRS in 1992 began to follow a cohort of men and women born between 1931 and 1941. Individuals had to meet this age criterion, but spouses of any age were included. The participants were reinterviewed in 1994, 1996, and 1998. The first wave interviewed more than 12,000 persons throughout the United States. It contained an oversample of African Americans and residents of Florida. The number of respondents in each year, born between 1931 and 1941, was 9,672 in 1992, 8,843 in 1994, 8,467 in 1996, and 8,631 in 1998. The differences across waves reflect deaths as well as nonresponse to a given wave. Approximately 2 percent of the original HRS respondents died between each pair of waves. The initial response rate was 81.7 percent, and the reinterview response rates were 91.8 percent, 93.1 percent, and 93.8 percent, respectively.

For this analysis, we limit our attention to those respondents who were ages fifty-seven to sixty-three in 1994, 1996, and 1998. For transitions analysis, we examine those in that age group with active-worker coverage in 1994 and 1996 and the nature of the coverage they had two years later (in 1996 and 1998). Questions concerning health coverage, like most of the questions in the HRS, are for a single point in time and relate to the day on which the survey was answered. The insurance questions were very similar in 1996 and 1998, directly asking the nature of any coverage. However, the 1994 wave was asked if coverage was the same as in 1992 and only directly asked about coverage for those reporting a change. We used the 1992 values for those with unchanged coverage.

The analysis uses national weights provided by the HRS, and the estimates are nationally representative. In 1998 the cohort was 52.8 percent female, 86.7 percent white, and 70.8 percent married with spouse present. Nearly 56 percent were working; 75.2 percent reported being in very good or excellent health; and 19.4 percent reported having a hospital stay in the past twelve months.

Our focus is on trends in coverage for the near-elderly. All changes in coverage noted in the text were found to be statistically significant, using either chi-square or t-tests.

Trends In Coverage

Top Data Sources Trends In Coverage Plan Options, Premium... Moving To Retiree Coverage Policy Implications NOTES

 
Four features stand out in the trends in health insurance coverage among persons ages fifty-seven to sixty-three (Exhibit 1). First, the near-elderly were much less likely to be uninsured than were those in most of the other age groups. The proportion with no coverage decreased from 14.7 percent in 1994 to 7.9 percent in 1998. The 1998 values are more than ten percentage points below the Current Population Survey (CPS) estimates for the population under age sixty-five. In fact, the CPS data indicate that the near-elderly were more likely to be insured in 1998 than any age group except persons ages forty-five to fifty-four.⁶

Third, the near-elderly are relatively more dependent upon private, individually purchased coverage than are younger workers. CPS data indicate that in 1998, 6.1 percent of the population under age sixty-five had individually purchased coverage. In contrast, approximately 10 percent of the near-elderly reported having this coverage in 1998.⁸ This percentage essentially held constant throughout the second half of the 1990s.

Finally, there was a near doubling of the percentage in this age range who had Medicare coverage, from 4.4 percent in 1994 to 8.3 percent in 1998. Since this age group is not eligible for regular Medicare, this enrollment reflects an increase in Medicare disability coverage for the 1996 and 1998 cohorts. It is also consistent with recent research that has related the decline in employment among the disabled to an increase in the use of Medicare disability coverage.⁹

Active-worker and retiree coverage. Among those with active-worker coverage, more than 75 percent had it in their own name in 1998; this reflects a modest increase since 1994 (Exhibit 2). However, coverage through a spouse declined. Among early retirees, the trend of declining reliance on spousal coverage is more pronounced, falling from 43.2 percent in 1994 to 35.8 percent in 1998.

Choice of plans. More than one-third of the near-elderly with employer coverage had a choice of plans. Retirees were slightly more likely to have a choice than were active workers. Moreover, the trends over the last half of the 1990s among both groups have been toward increased choice.

Managed care enrollment. A large percentage of the near-elderly were enrolled in a managed care plan (Exhibit 2). In 1994, 40 percent of those with active worker coverage were enrolled in either an HMO or a PPO. By 1998 nearly 62 percent were. Those with early-retiree coverage followed suit. While these percentages are well below the 93 percent reported by Gabel and colleagues as the percentage of insured workers of any age who had managed care coverage in 2001, they do show that managed care has become the major form of coverage for the near-elderly with active-worker coverage, and nearly so for those with early-retiree coverage.¹⁰

Plan Options, Premium Contributions, And Choices

Top Data Sources Trends In Coverage Plan Options, Premium... Moving To Retiree Coverage Policy Implications NOTES

 
Plan options. Among the near-elderly with active-worker or retiree coverage and a choice of plans, four-fifths chose a managed care plan in 1998 (Exhibit 3). Active workers were more likely than retirees to do so. A majority of this age cohort chose a managed care plan as early as 1994.

The HRS near-elderly reflect this broader trend. Among active workers without a choice of plans, in 1994 more than half were in FFS plans. By 1998, 74.3 percent were in either an HMO or a PPO. The shift among those with retiree coverage was less pronounced. Nonetheless, by 1998 more than 58 percent of those with only one plan were in managed care.

Premium contributions. Three findings stand out with respect to premium contribution policy. First, there are large differences in the use of premium contributions between those with and without a choice of plans (Exhibit 4). In 1998, across all plan types, two-thirds of active workers with a choice of plans faced out-of-pocket premium contributions; so did 52 percent of those without a choice. Retirees with a choice of plans were 60 percent more likely to pay out-of-pocket premiums than were retirees without a choice. It is not surprising that the policies differ. What is surprising is that such a large proportion of workers and retirees without a choice nonetheless faced premium contributions. This suggests that a relatively large component of this age group either did not value health insurance very strongly or had insurance options independent of their employer. The tax advantages of employer coverage argue for no premium contributions when only a single plan is offered.

Third, firms that offer only a FFS plan are different from those offering only single-option managed care or multiple plan options. Active workers and retirees offered only a FFS plan were much less likely to face premium sharing. Among retirees with only a FFS plan, only 16 percent faced a premium contribution in 1998. This was a decline from 1994.

The trends also show that average out-of-pocket premium contributions (adjusted for inflation) were typically lower in 1998 than in 1994 and "bottomed out" in 1996 (Exhibit 4). This is consistent with the trend in overall insurance premiums. KPMG data for the decade show that inflation-adjusted premiums actually declined in 1996 after rising at slower and slower rates through the first half of the decade and rising after 1996.¹³ While it would be instructive to compare the out-of-pocket premium across plan types, this could be very misleading given that we have no data on the out-of-pocket premiums of the other plans that may have been offered.

Taken together, however, the findings in Exhibit 4 suggest one explanation for the growth in managed care among those with a choice of plans. The greater reliance on premium contributions has almost certainly led many older workers and early retirees to choose plans with lower out-of-pocket premiums. This is consistent with the large premium elasticities reported in the literature on employee plan choice.¹⁴

The growth in managed care among those without a choice is more complex. One interpretation is that employers are forcing their workers into managed care. In as much as older workers are locked into their current jobs because of pension and retiree benefit promises, one can make a case that firms are extracting rents from these immobile workers. This view may go too far, however. It does not follow that all or most of those with a single health plan would have preferred some other form, given their relative costs. An employer will find it most profitable to offer the plan desired by the median worker and to charge workers for the coverage in the form of lower wages. If workers do not value a particular type of health plan, the employer will not be able to adjust wages to fully reflect the cost of the plan. Recent work by Pamela Peele and colleagues and John Moran and colleagues suggests that employers have served as reasonably good agents for their workers.¹⁵

Characteristics of the near-elderly with active-worker/retiree coverage. While differences exist in the probabilities that respondents will choose one or another plan type, the results are similar for those with active and with retiree coverage.

Married persons were much more likely to be in a traditional plan (Exhibit 5). The never married, divorced, and widowed tended to be enrolled in HMOs. Men were more likely to be in an HMO; women were disproportionately enrolled in FFS plans. Whites were somewhat more likely to be enrolled in FFS plans, while African Americans and other minorities were most likely to be enrolled in HMOs. Those who had active worker coverage because they were working were half again more likely to be enrolled in an HMO than a PPO or a traditional plan. In contrast, those who were not working, for whatever reason, but who had coverage through a working spouse were much more likely to have traditional coverage.

Moving To Retiree Coverage

Top Data Sources Trends In Coverage Plan Options, Premium... Moving To Retiree Coverage Policy Implications NOTES

 
Earlier work based on data from the mid-1980s found that workers with retiree coverage were then twice as likely to retire as were those without the coverage.¹⁶ More recently Jeanette Rogowski and Lynn Karoly found that near-elderly men with the promise of retiree health insurance in 1992 were 68 percent more likely to retire than were their counter-parts who would lose employer coverage.¹⁷ Health insurance coverage has become more important to the retirement decision.

To our knowledge, no one has explored the nature of coverage in the transition from worker to retiree coverage. At early retirement, do the near-elderly migrate from one form of coverage to another? Do they eschew managed care for more traditional forms of coverage that may provide greater choice of providers? Do they continue to use the plan types that they used during their working years? Exhibit 6 provides some preliminary answers.

Importantly, nearly 11 percent of those moving from active-worker coverage between 1996 and 1998 reported having no insurance coverage. This is up substantially from the 1994–1996 cohort. The 1998 value for this sub-sample is much larger than the overall percentage of near-elderly uninsured persons in 1998 shown in Exhibit 1. The finding suggests, at minimum, that those newly separating from the workforce are having greater difficulty obtaining substitute forms of coverage. The small percentage with public coverage, again relative to Exhibit 1, suggests that some of the near-elderly are withdrawing from the workforce for health reasons and, at the time of the survey, had not yet obtained Medicare disability coverage or private insurance.

It is clear from Exhibit 7 that most of those moving to retiree coverage continued to maintain their preretirement form of coverage. This was true in 1996, but particularly so in 1998. Among those 1996 active workers with HMO coverage, more than 75 percent continued to have HMO coverage upon early retirement by 1998. Among active workers with PPO coverage, almost 60 percent had PPO coverage upon retirement. And among those with FFS active-worker coverage in 1996, 75.4 percent continued to have FFS coverage upon retirement in 1998.

Policy Implications

Top Data Sources Trends In Coverage Plan Options, Premium... Moving To Retiree Coverage Policy Implications NOTES

 
Three key findings emerge from this investigation of the 1994–1998 HRS data. First, managed care has become the dominant form of employer coverage for the near-elderly. Second, the evidence suggests that the migration to managed care reflects the same issues faced by younger workers. Third, the limited findings on older workers suggest that they will not avoid managed care when they retire.

Medicare. These findings do not address the choices of those workers who reach age sixty-five and become eligible for Medicare. This is obviously a broader question that depends in part on the availability of Medicare+Choice options. However, other work by one of us using the HRS revealed that older workers who had been enrolled in an HMO as an active worker were more than three times more likely to join a Medicare HMO upon becoming eligible.¹⁸

These results suggest that new or existing managed care options under Medicare may be attractive choices to a sizable component of the aging baby-boom generation. This bodes well for the debates on Medicare reform that will emerge in the next few years. Policy-makers should have some real flexibility to consider a wider range of options than simply tinkering with the existing system. However, the large number of near-elderly persons who have remained in traditional coverage suggests that acceptable reforms must allow for a range of preferences among the elderly.

Disability coverage. Our study suggests that greater attention needs to be paid to Medicare disability, nongroup insurance, and the uninsured among the near-elderly. The HRS revealed a doubling of the percentage of near-elderly reporting that they had Medicare disability between 1994 and 1998. John Bound and Timothy Waidmann also report an increase in withdrawal from the workforce over the 1990s and attribute it to a "quite dramatic" increase in Social Security disability coverage.¹⁹ The growth (and cost) of this program together with its implications for the labor market cry out for careful research attention.

Individual insurance. Individually purchased private coverage plays a particularly important role for this age group; approximately 10 percent had such coverage in 1998 compared with about 6 percent among the nonelderly generally. In our transition analysis we found a large decline in the use of individual coverage and an increase in the percentage of uninsured among those moving out of active status. The reasons for this are unclear. One possibility is that an increase in disability has forced more workers out of the labor market but that delays in disability eligibility have left them with few coverage options. A second possibility, noted by Kosali Simon in the small-group market, is that state efforts at insurance reform often restrict the use of health status as an underwriting factor.²⁰ The result is that insurers put more emphasis on age, disproportionately raising premiums for older purchasers as a proxy for poorer health. Clearly, more work on the individual insurance market and the labor market for older workers is warranted.

Editor's Notes

 
Michael Morrisey is professor and director, Lister Hill Center for Health Policy, University of Alabama at Birmingham. Gail Jensen is a professor in the Institute of Gerontology and Department of Economics, Wayne State University, in Detroit.

This study was funded by the Pension and Welfare Benefits Administration, U.S. Department of Labor, Contract no. J-9-P-7-0048. The opinions and conclusions contained herein do not necessarily reflect those of the U.S Department of Labor. We thank Yinghui He for excellent research assistance and two anonymous reviewers for helpful comments on an earlier draft.

NOTES

Top Data Sources Trends In Coverage Plan Options, Premium... Moving To Retiree Coverage Policy Implications NOTES

 

1. U.S. Bureau of the Census, Statistical Abstract of the United States:1995, 115th ed. (Washington: U.S. Government Printing Office, 1995), 17.
2. R.D. Reischauer, "Medicare: Beyond 2002," in Policy Options for Reforming the Medicare Program, ed. S.H. Altman, U.E. Reinhardt, and D. Shactman (Waltham, Mass.: Council on the Economic Impact of Health System Change, July 1997).
3. See, for example, B. Dowd and R. Feldman, "Biased Selection in Twin Cities Health Plans," Advances in Health Economics and Health Services Research 6 (1985): 253–271; R.P. Ellis, "The Effect of Prior-Year Health Expenditures on Health Plan Coverage Plan Choice," Advances in Health Economics and Health Services Research 6 (1985): 149–170[Medline]; and R. Feldman et al., "The Demand for Employment-Based Health Insurance Plans," Journal of Human Resources 24, no. 1 (1989): 115–142.
4. J. Gabel et al., "Job-Based Health Insurance in 2001: Inflation Hits Double Digits, Managed Care Retreats," Health Affairs (Sep/Oct 2001): 180–186.
5. For details on the HRS, see <www.umich.edu/~hrswww>(1 June 2001).
6. See Employee Benefit Research Institute, Sources of Health Insurance and Characteristics of the Uninsured, EBRI Issue Brief nos. 170, 192, and 217 (Washington: EBRI, February 1996, December 1997, and January 2000). The HRS estimates for the near-elderly are consistent with the Current Population Survey (CPS).
7. The HRS data indicate that coverage in one’s own name declined among working men (women) from 83.5 (69.8) percent in 1994 to 55.6 (52.7) percent in 1998. Coverage through a spouse declined for working men (women) from 13.7 (18.5) percent in 1994 to 5.3 (9.5) percent in 1998. Retirement rates declined slightly between 1994 and 1998.
8. See EBRI Issue Brief nos. 170, 192, and 217.
9. J. Bound and T. Waidmann, "Accounting for Recent Declines in Employment Rates among the Working-Aged Disabled," NBER Working Paper 7975 (Cambridge, Mass.: National Bureau of Economic Research, 2000).
10. Gabel et al., "Job-Based Health Insurance."
11. KPMG Peat Marwick, Health Benefits in 1998 (Washington: KPMG, 1998).
12. M.A. Morrisey and G.A. Jensen, "Switching to Managed Care in the Small Employer Market," Inquiry 34, no. 3 (1997): 237–248.[Medline]
13. KPMG, Health Benefits in 1998.
14. See, for example, B. Dowd and R. Feldman, "Premium Elasticities of Health Plan Choice," Inquiry 31, no. 4 (1994/95): 438–444.
15. P.B. Peele et al., "Employer-Sponsored Health Insurance: Are Employers Good Agents for Their Employees?" Milbank Quarterly 78, no. 1 (2000): 5–21[Medline]; and J.R. Moran, M.E. Chernew, and R.A. Hirth, "Preference Diversity and the Breadth of Employee Health Insurance Options" (Paper presented at the 11th Annual Health Economics Meetings, Washington, D.C., 11 June 2000).
16. L.A. Karoly and J.A. Rogowski, "The Effect of Access to Post-Retirement Health Insurance on the Decision to Retire Early," Industrial and Labor Relations Review 48, no. 1 (1994): 103–123.
17. J. Rogowski and L. Karoly, "Health Insurance and Retirement Behavior: Evidence from the Health and Retirement Survey," Journal of Health Economics 19, no. 4 (2000): 529–539.[Medline]
18. G. A. Jensen and D. A. Weycker, "Who Selects an HMO upon Enrolling in Medicare: The Risk Characteristics and Prior Health Insurance of Takers" (Working paper, Wayne State University, September 2000).
19. Bound and Waidmann, "Accounting for Recent Declines in Employment Rates."
20. K. Simon, "Labor Market Implications of State Small Group Health Insurance Reform" (Working paper, Michigan State University, 2000).

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