With the renewed policy interest in Medicare this election season, a looming fiscal crisis, and the economy still struggling to emerge from the worst recession in 80 years, it is a good time to take a step back and assess the importance of both Medicare and Social Security in protecting the well-being of the elderly. The benefits these programs provide to current retirees are obvious, but based on research that my colleagues and I have recently completed, the benefits go far beyond that. Not only do they provide a safety net for those currently retired, they also provide considerable advantages to current workers who are approaching traditional retirement ages in the United States, including improved long-term health outcomes.
Unfortunately, workers in their 50s and 60s face particular difficulties in the labor market when the economy is weak. Jobs are few to begin with, and unemployed older workers may struggle to land those jobs if employers perceive (fairly or not) that their skills are out of date or that they would be unwilling to accept lower wages. Older workers who have suffered a job loss often miss out on years of peak career earnings and may end up retiring earlier than expected. In a system with employer-provided insurance, a job loss can also mean years without health insurance, with the resulting reduction in access to health care potentially shortening the lifespan of affected workers. In short, older workers affected by a labor market downturn may hobble across the finish line, retiring earlier than planned, with lower income and poorer long-term health outcomes.
My past work with Courtney Coile, described in the book Reconsidering Retirement: How Losses and Layoffs Affect Older Workers, along with more recent work with Coile and Robin McKnight, Recessions, Older Workers, and Longevity: How Long Are Recessions Good For Your Health?, unfortunately supports this rather gloomy hypothesis. For instance, we find that a major recession, like the one just experienced in the U.S., increases the retirement rate by about 10 percent. In addition, our results suggest that individuals who lose their jobs during a major recession at, say, age 58, may face up to a three-year reduction in their life expectancy.
Yet our research on these issues also highlights the importance of Medicare and Social Security for older workers in tough economic times. When older workers under the age of 62 experience a job loss, they tend to remain in the labor force. With no source of income, dropping out of the labor force is not a viable option, even if the job hunt is long and prospects are bleak. By contrast, those who experience a job loss at or after age 62, the earliest age at which individuals can claim Social Security benefits, are more apt to retire and start collecting Social Security benefits. For these older workers, Social Security eligibility provides a lifeline. It enables them to receive at least some income support at a time that otherwise would be characterized by greater financial hardship.
Medicare, along with Social Security, appears to help protect older workers who lose their jobs during a recession from poor health. We have found that experiencing a recession during one's late 50s through age 61 reduces life expectancy. However, this effect is not evident when the recession hits at or after age 62. Apparently, the availability of Social Security at age 62 and Medicare at age 65 has a protective effect on health. COBRA coverage too may play a role, helping to fill the gap in insurance coverage between 62 and 65. We also find that gaps in health insurance coverage and access to care that emerge for those individuals who experienced a recession in their 50s vanish once they reach age 65.
This is not to say that Social Security and Medicare alleviate all of the hardships that these older workers endure. Indeed, our research strongly suggests that individuals unlucky enough to approach retirement during bad economic times experience long-term deficits in employment, income, and health. These programs do, however, seem to limit the damage that is caused. This is one reason, along with others, that the integrity of lifelines like Medicare and Social Security need to be maintained.
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