The Effect of Health Insurance Mandate on Labor Market Activity and Time Allocation: Evidence from the Federal Dependent Coverage Provision

In September 2010, the dependent coverage mandate—one of the most popular policies in the Affordable Care Act (ACA)—went into effect, allowing young adults up to the age of 26 to remain on their parents’ health insurance. This study evaluates the effect of the federal dependent coverage mandate on time allocation among young adults by providing a detailed analysis on how the mandate affects time at work as well as time spent outside of work. We divide time spent outside of work into two categories of time allocation: 1) Utility-enhancing free-time activities such as eating, sleeping, watching television, and socializing; and 2) Health-enhancing activities such as time spent on health and exercising. The latter category of time use allows us to test for the presence of ex ante moral hazard by examining whether young adults place less effort in maintaining their health in response to the insurance being provided.

We investigate the questions on hand by using data from the Consumer Population Survey (CPS) and the American Time Use Survey (ATUS) for the time period 2008-2013. We implement a difference-in-differences framework, where respondents aged 23 to 25 are considered as treated individuals and the control group is comprised of people who are 27 to 29 years old. By exploiting state-level variations in the dependent coverage mandates prior to the federal dependent coverage, we conduct several robustness exercises to test whether our results are driven by the Great Recession.

We find that the federal dependent coverage substantially affects the allocation of time among young adults. The results suggest that individuals between the ages of 23-25 reduce their weekly time spent on market work. Specifically, we show that young adults are more likely to switch from full- to part-time employment as a result of the mandate. We find that individuals reallocate majority of foregone work time towards leisure, especially towards watching television. Furthermore, we find suggestive evidence for the presence of ex-ante moral hazard by showing that young adults reduce their time spent on health-enhancing activities following the policy change. Several robustness checks suggest that the Great Recession is not driving our results. Overall, out findings suggest that, while increasing the number of insured young adults, insurance mandates such as the ACA dependent coverage mandate can also have unintended negative consequences to society.