I know it's not popular, but it is a hill I will die on — "kids" staying on their parent's insurance until they are 26 is likely one of the more regressive parts of the ACA.
Would be far better for those kids to be on marketplace insurance plans … https://t.co/2eUezjOaI4
— Craig Garthwaite (@C_Garthwaite) September 28, 2020
I agree with Craig.
After the ACA exchanges got started and stabilized (so no later than 2015), keeping large numbers of relatively healthy 26 year olds off the Exchanges was a policy own-goal and it is regressive.
The Under-26 benefit relies on a couple of things. First, it relies on the young adult and their parent having a good enough relationship where the parent is willing to do a solid for the young adult. Secondly, it relies on the parent having a good enough job to offer health insurance with family coverage. This simple qualification means that the benefit is mostly restricted to middle and upper class workers. Thirdly, the young adult may or may not be eligible for premium tax credits. It is not at all implausible that an upper middle class family will get more federal support through the hidden tax benefits of employer sponsored insurance than the young adult would receive via premium tax credits.
Furthermore, pulling out several million relatively healthy 19-26 year olds from the ACA pool increases average morbidity in the ACA pool. Higher average morbidity means higher claims expenses and thus higher premiums. Higher premiums are directly borne by anyone who does not receive a subsidy and also any subsidized individual who wants to buy a plan priced above the local benchmark. Federal expenses will increase. The only beneficiaries of higher index premiums are subsidized individuals who want to buy a plan priced below benchmark. This is valuable, but pulling millions of relatively healthy folks out of the pool is an extraordinarily inefficient way of achieving this objective.
So why was this included in the ACA?
I can think of a few reasons. The first is basic politics. This is a very tangible and visible benefit to middle and upper class middle-aged led households for a law that has few other direct and visible potentially positive improvements for that cohort. It could be implemented very quickly and the costs are submerged and second and third order. The second is that there was a long gap between when the ACA was signed and when the two major coverage expansion efforts, Medicaid Expansion and the Exchanges, would go live. This was a reasonable transitional effort. Finally, it could be argued that the administrative burden and the ordeal of a bunch of 18-26 year olds navigating insurance markets would lead to massive coverage losses due to administrative friction.
I am sympathetic to the administrative burden argument. A decent chunk of my emerging research agenda has been decision complexity and confusion. Insurance is fundamentally confusing. Middled aged middle and upper class parents are far more likely to hold insurance as a valuable good compared to young adults. The middle-aged and middle and upper class parents have the combination of learning by doing and far more importantly, knowledge of how to navigate opaque bureaucratic complexes. There could be a reasonable argument that millions of 18-26 year olds would never get coverage because the mechanisms of finding and maintaining coverage were too complex. I am not sure how to design that study right now, but this is quite plausible set of trade-offs. But even if that is the case, the U-26 policy is still regressive as the young adults whose parents either don’t have employer sponsored insurance OR have familiarity with navigating complex bureaucratic systems are likely to be poorer and less advantaged than the U-26ers whose parents have coverage and can navigate complex bureaucratic systems.
I think the U-26 policy is good politics and will be a feature of the US healthcare finance system for a long while but behind a veil of ignorance, it would be gone in a rational redesign of the US systems.