3. Early retirement may become more prevalent. Some employers that currently provide health coverage to retirees under age 65 are talking about dropping that coverage. These include large private firms like Time Warner and IBM and governments such as Chicago, Detroit and Rhode Island. Obamacare’s exchanges and subsidies will make it suddenly much easier for retirees under 65 to get their own coverage, making it less economical for employers to provide it.
But most workers currently do not have access to pre-Medicare retiree health benefits through work. Only about 20% of private sector employees currently have access to such benefits; in the public sector, the figure is likely about 2/3. For the majority without such generous employers, Obamacare will be a boon, making it easier to retire before Medicare age, or to shift into a different kind of work that doesn’t come with health insurance.
The question is how many will do so. In 2008, CBO analyzed a proposal to let people aged 62 to 64 buy Medicare coverage at full price, and they thought the effects would be tiny: just 20,000 added retirements out of a population around 10 million. But Obamacare’s offering to young retirees is much more generous: prices would be lower, because Obamacare’s premium structures favor older people, and many retirees would be eligible for subsidies that further cut the price they pay.
Even if retirement behavior doesn’t change that much, the change in who pays for health care will matter a lot to taxpayers. State and local governments have over a trillion dollars in accrued and unfunded liabilities for retiree health care. Unlike pension benefits, they usually are not guaranteed, so elected officials can change their terms at will. Cities like Chicago are realizing that Obamacare provides an opportunity to offload much or all of those liabilities onto the federal government.
4. Work and health care will be severed. Uncertainty about future employer and employee behavior is a source of uncertainty in the overall cost estimates for Obamacare. If more employers than expected drop insurance coverage and send employees to buy subsidized coverage in the exchanges, the law’s costs will rise. If union-sponsored Taft-Hartley multiemployer plans lose their rationale, and many of their 20 million participants shift to buying subsidized plans though exchanges, the law’s costs will rise. If easier availability of health insurance outside work further reduces labor force participation, the law’s costs will rise.
One of the key problems with Obamacare’s design is that it tries to simultaneously get health insurance to lots of people who don’t have it while discouraging employers from dropping the (very expensive) plans they currently offer. Once we have separated the availability of health insurance from employment, it is likely to prove untenable to expect employers to keep offering it. That shift will be a mixed bag for employers: They’ll be relieved of rising health insurance costs, but they’ll have to pay added taxes and they’ll lose power over their employees. But for workers, the added freedom should be mostly positive.