Financial protection due to Dependent Care Provisions in the Affordable Care Act

Early evidence from the Affordable Care Act’s dependent coverage provisions shows a modest but significant rise in insurance coverage for young adults aged 19 to 25.  As evidence from Oregon’s Medicaid program suggests, for adult children gaining coverage on parental policies, the most important implications may be the financial protection afforded against relatively rare but costly medical expenses. To date, we have no evidence whether or how new insurance coverage for young adults provided financial protection, whether those protections improved the emotional well being of young adults, nor the likely cost of adding young adults to parental policies.

In this paper, we use data from 2007-2011 Medical Expenditure Panel Surveys to examine changes in the source of insurance coverage, out-of-pocket payments, and self-reported health and mental health of young adults targeted by dependent coverage provisions (adults age 19-25) following the September 2010 implementation of these provisions in the Affordable Care Act.  Using a simple difference in difference design, comparing outcomes among 19-25 year olds to 26-29 year olds, we document several interesting features of the Dependent Coverage Laws 15 months after their implementation.

First, when examining coverage in December 2011, we find large insurance coverage gains due to dependent coverage provisions, 8.7 percentage points, which are twice as large as earlier estimates which, based on full year coverage, may have reflected a period of transition earlier in 2011. By December of 2011, we estimate that the share of 19-25 year olds reporting private insurance coverage grew by 9.2 percentage points due to ACA’s provisions.  Second, comparing medical spending at different points in the distribution, we find no change in out of pocket spending for the median young adult, but a significant $500 decrease in annual out of pocket spending for 19-25 year olds at the 95^th percentile by 2011.  The probability of facing more than $2000 in out of pocket spending fell by 2.6 percentage points.  Third, we found no significant change in self-reported mental health, serious psychological distress, or depression among 19-25 year olds coincident with the ACA coverage.  Although we did not detect the same mental health benefits to young adults that Oregon’s Medicaid expansions provided, these adults experienced increased economic security following implementation of dependent coverage provisions.  Finally, we estimate that this financial risk protection was achieved without increasing total health care spending in this age group.