Health insurance and the labor supply decisions of older workers: Evidence from a U.S. Department of Veterans Affairs expansion

This paper exploits a major mid-1990s expansion in the U.S. Department of Veterans Affairs health care system to provide evidence on the labor market effects of expanding health insurance availability. Using data from the Current Population Survey, we employ a difference-in-differences strategy to compare the labor market behavior of older veterans and non-veterans before and after the VA health benefits expansion to test the impact of public health insurance on labor supply. We find that older workers are significantly more likely to decrease work both on the extensive and intensive margins after receiving access to non-employer based insurance. Workers with some college education or a college degree are more likely to transition into self-employment, a result consistent with “job-lock” effects. However, less-educated workers are more likely to leave self-employment, a result suggesting that the positive income effect from receiving public insurance dominates the “job-lock” effect for these workers. Some relatively disadvantaged sub-populations may also increase their labor supply after gaining greater access to public insurance, consistent with complementary positive health effects of health care access or decreased work disincentives for these groups. We conclude that this reform has affected employment and retirement decisions, and suggest that future moves toward universal coverage or expansions of Medicare are likely to have significant labor market effects.