The presidential contest reminds us daily just how divisive healthcare reform is in American politics. One could be forgiven for concluding that there is no common ground on this most personal and consequential of public policy issues. But there are some areas of consensus. One of the most well-known and popular parts of the Patient Protection and Affordable Care Act (ACA) is the extension of dependent coverage in private health insurance to young adults up to age 26.
Perhaps it is a sad commentary that our healthcare body politic can only agree on the most incremental of incremental reforms. Nevertheless, not only does there appear to be an absence of vitriol about this policy but also the policy appears to be actually working. Young adult dependent coverage also offers some important public policy lessons.
Enthusiasm about young adult dependent coverage pre-dates the ACA. In fact, two thirds of the states enacted some form of this policy before the ACA, including some of the deepest red states (Utah was the first to enact and Texas and Louisiana were among a wave of states enacting in the 2000s) to the bluest of the blue (Maryland and New York, for example). New Jersey was also an early adopter, with the highest upper age limit for dependent coverage, 31 years old.
There are many reasons that young adult dependent coverage may be the consensus policy that it appears to be. First, young adults have the highest uninsured rate of any age group — nearly 30 percent was without coverage before the ACA. We naturally think of this group as having few healthcare needs, suggesting they may not need coverage. But young adulthood is when many life-long and expensive chronic conditions gain their foothold. Smoking and obesity too often emerge in early adulthood, as do medical conditions such as diabetes and serious psychiatric disorders. Research clearly documents that many young adults experience serious access to care problems and adverse financial consequences due to lack of coverage. At the same time, it is true that young adults are on average healthier than other adults, so their absence from insurance risk pools contributes to higher premiums for everyone else.
A second reason for the appeal of laws extending dependent coverage is that they do not add to government budgets. No tax credits, vouchers, or entitlements are needed. Of course, requiring employers to cover young adults is not cost-free, but tight federal and state budgets increase the appeal of this policy. Additionally, lack of health insurance is a middleclass problem. This policy has a politically potent constituency and lacks even a hint of welfare stigma.
In short – young adult dependent coverage addresses a long-standing gap in our health insurance infrastructure, does not require government spending, and helps the middleclass. Still, in spite of its broad appeal, this policy deserves as much scrutiny as any other significant change to the regulation of health insurance markets.
Over the past few years, my colleagues at the Rutgers Center for State Health Policy and UMDNJ School of Public Health have collaborated on a series of studies of young adult dependent coverage, with some surprising results. Our first study examined state policies before the ACA. This analysis, led by UMDNJ professor Alan Monheit, documented that many young adults took advantage of opportunities to join their parents’ plan, but at the same time these policies had no measurable impact on the number of uninsured young adults. Rather, we found that the state policies led young adults to switch to a parent’s plan from their own.
We concluded that a number of limitations in the state laws, some self-imposed by the states and others imposed by federal law, contributed to the laws lack of impact on the uninsured. Most states, for example, exclude married young adults and impose residency requirements. Some states (including New Jersey) require or allow insurers to charge extra premiums for each enrolled young adult. Importantly, a 1970’s federal pension law also limits the reach of these state policies mainly to individually purchased (nongroup) health insurance and small group plans. Most large employers are exempt from the state laws.
The impact of the dependent coverage rules of the ACA contrast sharply with the disappointing state experience. In an updated study, we found rapid uptake of young adult dependent coverage and a decisive reduction in the number of uninsured young adults. Our study examined the impact of the federal law in just the first few months of implementation. More recent federal statistics show that through 2011 just over 3.1 million young adults gained dependent coverage nationally (with roughly 73,000 of those in New Jersey).
Why did the ACA dependent coverage rules achieve coverage gains for young adults, while the state policies did not? There may be several reasons. The ACA does not include the extensive restrictions of the state laws. Under the ACA, for instance, young adults are eligible for coverage on a parent’s plan, regardless of the state in which they live, and there are no exclusions based on marital status. The ACA also does not permit charging separate premiums for young adults, they must be covered under standard family premiums. Further, the federal law also applies to virtually all private plans, even self-funded health plans of large employers. Some employers are permitted to decline to cover young adults who are enrolled in another group plan, such as through their own job (and this exception goes away in 2014). The success of the federal policy may also stem from broad public awareness of the option, as demonstrated in national polls.
Is this success worth celebrating? Sure — it is notably bipartisan and may have covered as many as three million uninsured young adults. Nevertheless, this policy bears continued monitoring. The cost of enrolling young adult dependents will fall on the groups that must cover them. That will increase employers’ family premiums, at least modestly. The availability of “free” young adult coverage (from the perspective of employees already paying family premiums) may also draw healthy young people out of other kinds of coverage, such as plans that will be available in 2014 through state health benefit exchanges. A large-scale shift of healthy young adults out of such plans would increase the average risk and premiums in those plans. No evidence of unintended consequences of young adult dependent coverage has yet emerged, so at least for now we can celebrate a rare health insurance policy success.