How does retiree health insurance influence public sector employee saving?

Economic theory predicts that employer-provided retiree health insurance (RHI) benefits have a crowd-out effect on household wealth accumulation, not dissimilar to the effects reported elsewhere for employer pensions, Social Security, and Medicare. Nevertheless, we are unaware of any similar research on the impacts of retiree health insurance per se. Accordingly, the present paper utilizes a unique data file on respondents to the Health and Retirement Study, to explore how employer-provided retiree health insurance may influence net household wealth among public sector employees, where retiree healthcare benefits are still quite prevalent. Key findings include the following: - Most full-time public sector employees anticipate having employer-provided health insurance coverage in retirement, unlike most private sector workers. - Public sector employees covered by RHI had substantially less wealth than similar private sector employees without RHI. In our data, Federal workers had about $82,000 (18%) less net wealth than private sector employees lacking RHI; state/local workers with RHI accumulated about $69,000 (or 15%) less net wealth than their uninsured private sector counterparts. - After controlling on socioeconomic status and differences in pension coverage, net household wealth for Federal employees was $116,000 less than workers without RHI and the result is statistically significant; the state/local difference was not. (C) 2014 Elsevier B.V. All rights reserved.