Do Young Adults Exhibit Moral Hazard Behavior? Evidence from the ACA Dependent Coverage Mandate

Using data from two national surveys, we take advantage of a policy change introduced by the Affordable Care Act (ACA) to investigate whether moral hazard related to health insurance coverage plays an important role among young adults. We consider moral hazard both in the ex-post sense where the lower point-of-service prices due to health insurance alter utilization behavior and in the ex-ante sense where the reduced cost of adverse events may alter risk avoidance behavior.

We obtain data from the Medical Expenditure Panel Survey (MEPS) and the Behavioral Risk Factor Surveillance System (BRFSS) to evaluate the impact of insurance coverage on a broad array of behavioral and utilization measures. The MEPS provides comprehensive data on outpatient and preventive care utilization measures in addition to data on expenditures across payers, including self or family expenditure. The in-depth interviews of the BRFSS series yields a rich set of details regarding individual preventive health practices and risk behaviors such as alcohol and tobacco use, exercise, injuries, and immunizations.

We employ a difference-in-difference regression model to identify causal effects of the 2010 ACA policy change which directly affected young adults ages 19-25. Dependents up until 26 were allowed to remain covered on parental employer-sponsored insurance. Previously, only full-time students ages 18-23 could remain as dependents on employer-sponsored plans. Data from 2006-2009 comprises the pre-policy period while data from 2011-2012 provides the post-policy evidence on changes in behavior. To control for other changes in the health care landscape affecting health insurance status and behavior, we use a group consisting of adults between ages 27-34 is as the comparison or control group in the study. Our policy parameter of interest is the differential changes in the pre versus post periods for the group of 19-25 year-olds affected by the policy change compared to the older cohort that is unaffected by the change.

Interesting evidence emerges from early results. Prior evidence strongly supports ex-post moral hazard behavior following take-up of insurance in a broad population but for the group of 19-25 year-olds we find virtually no evidence of changes in utilization as a result of increased access to insurance coverage. Though we do find evidence of reduced seat belt use, overall the evidence points to a small impact of insurance access on ex-ante moral hazard behavior as well.

We discuss the implications of our findings in relation to the theory of “young invincibles”, a topic that has gained notoriety since passage of the ACA and relates to a subsection of young adults who view themselves as not needing health insurance.  Labeled the “young invincibles”, this group raises a concern that the overall risk pool in the state-based health insurance exchanges may suffer if enough young adults forego coverage.