NCPA - National Center for Policy Analysis

Health Reform and the Impact of Extending Dependent Coverage to Age 26

June 29, 2012

Advocates of the Affordable Care Act (ACA) proudly point out the millions of previously uninsured Americans who will be able to gain coverage with the law's implementation. However, recent research shows that in accomplishing this policy objective, the massive health care reform law may have a number of unintended consequences that could lead to higher premiums, says Drew Gonshorowski, a policy analyst with the Heritage Foundation.

In the case of insuring more young people, recent analysis shows that the ACA encourages young adults to enroll in dependent coverage and drop their own coverage, causes employers to stop offering coverage, and will likely increase premiums.

  • By providing coverage for all young adults under the age of 26 through their respective parents' plans, the ACA implicitly encourages those adults to drop coverage they may have in their own name in favor of remaining a dependent of their parents.
  • The Employee Benefit Research Institute (EBRI) found that 20 percent of individuals ages 19-25 had plans in their own names before the ACA, but after the regulation's implementation, this share dropped to 17.5 percent.
  • The share of individuals with dependent coverage changed from 24.7 percent to 27.7 percent in the same period of time.

The case is similar for pregnant women and children, now covered by expansions of the Medicaid program. These individuals were incentivized to drop their private coverage in favor of enrolling in the program. The result, according to some studies, was a 50 percent increase in Medicaid coverage.

As health care consumers rationally respond to the incentive structure created by the ACA, the likely results will be higher premiums and fewer insurance options.

  • The Obama administration had previously projected that premiums would increase by only 1 percent with the reform law's enactment.
  • Given this shifting behavior as consumers drop private coverage in favor of public options, it seems that a more accurate estimate would be closer to 3 percent.
  • Further, Survey of Income and Program Participation data shows that an additional 15 percent of young people were unable to receive health insurance through their employer, suggesting that they are now expected to obtain coverage thorough their parents.

Source: Drew Gonshorowski, "Health Reform and the Impact of Extending Dependent Coverage to Age 26," Heritage Foundation, June 21, 2012.

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