Wage and labor market effects of dependent coverage expansion

The following originally appeared at The Upshot (copyright 2014, The New York Times Company).

One of the earliest pieces of the health-care law to go into effect — and one of the easiest to understand — was the one that allowed adults under age 26 to remain on their parents’ insurance plan. It has long been clear that the policy has somewhat increased the insurance rate among young adults. Now a new study suggests the effects may be much broader, also leading to increases in educational attainment and the wages of young adults.

The findings suggest that the health law has given young adults more flexibility to make decisions they think are best for them financially, rather than making decisions simply to obtain health insurance. With coverage from their parents’ plans, they can remain in college or graduate school, rather than leaving to take a job that provides health insurance. The cost of college is also potentially lower for such students because some colleges require health insurance coverage, which raises the cost of attendance.

With coverage in place, once students leave school, they can consider a broader range of jobs, including some that do not offer good health insurance or any health insurance. This finding is consistent with the academic literature on “job lock,” which has consistently shown that people who do not need to take a job with employer-based coverage have more flexibility, resulting in better employment matches with higher wages on average.

The Affordable Care Act appears to have increased health-insurance coverage among people under 26 by about 3 to 7 percentage points, academic research has found. The new study, published in the Journal of Health Economics, does not directly examine the health-care law, though. (It’s too recent to know its long-term effects.)

The study instead examines the earlier state-based laws with similar requirements that adult children be able to remain on their parents’ plans. It found that for people who were at least 18 at the time a coverage law was passed, wages earned after age 22 increased by about 2 percent. An increase in education drove the wage boost for men.

No similar educational effect was found for women, yet their wages increased as well. Those wage gains may stem from the new employment flexibility the law gives young women, allowing them to avoid job lock.

If anything, the Affordable Care Act may have a bigger effect than the state-based laws, because it has a broader mandate. While the state laws don’t apply to all types of employers, the federal law does. The new studyestimates that the law will lead to sustained wage increases for affected young adults closer to 4 percent.

We’ll need to wait for more evidence to know for sure, but the latest findings show yet another example of the economic costs of our dysfunctional health-care system. For all its imperfections, the health-care overhaul seems to have addressed some of those problems in ways that could increase the financial well-being of young Americans.


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