Kids are expensive – even when those kids are 26.
One of the most popular features of ObamaCare was the so-called “dependent-care mandate,” the rule requiring insurers to cover adult children up to age 26. This was supposed to be a modest change to help cover more people inexpensively.
Yet, a new working paper from the National Bureau of Economic Research found that workers with employer-based coverage lost $1,200 on average in wages as a result of this single provision. This wage loss was not limited to workers with dependent coverage, but hit all workers.
This study supports what critics of ObamaCare have long warned: The law’s coverage expansions – even popular ones – come with a cost. Some people may benefit from this mandate, but all workers face higher costs. This demonstrates how ObamaCare is changing insurance from a risk-based financial contract to plain old government-imposed redistribution and market distortion.
First, it increases insurance costs among those with employer-based insurance. Initially, some working parents believed there was no additional cost to putting their adult children on their insurance plans, because they did not see an immediate increase in their contribution to premiums, nor any other changes to their wages or benefits.
But nothing is free, not even covering young, healthy adults.
Young adults, while they may be generally healthy, are still at risk for high health costs, from hospitalizations due to accidents and to unexpected diagnoses with rare conditions. This is the point of insurance, to protect us from unexpected costs. But ObamaCare-style plans go even further, requiring all plans to cover even routine treatments. This too makes insurance more expensive, as people are more likely to make use of these services when they’ve already paid for coverage for them, driving up costs.
Second, as a result of its effect on the cost of employer-sponsored insurance, this mandate hurts businesses and ultimately workers, as shown in the latest NBER paper. Employers who pay for all or part of their workers’ insurance face difficult choices when premiums increase.
To find the extra money needed to pay the increase, they can hire fewer workers or lay some off, they can increase prices or reduce their services offered, or they can limit or decrease wages and other benefits for existing employees. All options are bad ones. NBER suggests the average wage decrease was $1,200.
Finally, this mandate results in the unfair punishment of workers who do not have adult dependents. All of ObamaCare’s mandates have a similar effect: Some people benefit, by taking advantage of the newly-mandated coverage, but others cannot. In any case, everyone pays more to subsidize the benefits that only a few enjoy.
In a different vein, this dependent-care mandate likely discourages many young adults from buying insurance on their own, thereby distorting the market for individually-purchased insurance. One of the ongoing challenges facing the ObamaCare exchanges is the disproportionate enrollment of older, less healthy people. Absent the age-26 mandate, more young adults (students or others without on-the-job benefits) would seek their own health insurance plans and could (at least in part) balance these pools. But by draining younger and healthier people from the individual market, this mandate leads to a sicker, and therefore more costly, pool and therefore also leads to higher premiums.
There is no reason the government should have made this mandate in the first place. Young adults should be easy to insure. Their youth and relative health should make them attractive, low-risk customers for insurance companies, who, in a freer market, would offer them very low premiums in exchange for decent coverage.
Unfortunately, ObamaCare destroys the concept of individual risk and responsibility in health insurance, relying on mandates to redistribute costs from young to old, from healthy to not healthy, from taxpayers to tax credit recipients. As we are seeing, this does not lower costs, but only shifts them around, resulting in unfairness and higher cost burdens overall. This is more evidence that ObamaCare isn’t making health care more affordable, and we are all paying the price.