Nothing is free. The advocates of the reform law tried to pretend that its many impacts on the health system were either low or no-cost, but we now all can see in myriad ways how untrue that is. One example is the mandate that employers and insurers allow dependents up to age 26 to remain on the employee’s health coverage. This requirement took effect early and researchers in a new paper published by the National Bureau of Economic Research examine the effect this requirement had on wages. (NBER Paper) The authors used the fact that some states already had extended-age mandates in place before the national mandate and compared effects across states. It is obvious that adding people to a health plan raises costs, even if they are relatively healthy young people. And it is likely the effect is exacerbated because parents and young people are most likely to be concerned about health coverage if they have known health conditions and costs, so the most expensive dependents are the most likely to be retained on coverage. An increase in costs means an increase in premiums, likely shared between firms and employees. Are the increased costs shared only by those workers who take advantage of the new mandate or by all employees? It has long been shown that companies’ health care costs result in lower wages than would otherwise be paid, so does a mandate further depress wages?
Prior research had indicated that the dependent mandate increased coverage of young people and raised health spending, with an estimated family premium increase of about $400 a year, but no direct link to increased employee premium contributions, suggesting that if there was an impact it must be through lower wages. These tradeoffs are implicit, it is not like companies and workers explicitly agree that the dependent mandate is worth X and then either increase premium contributions or reduce wages by that amount. Among other things it is hard for employees to necessarily figure out what the mandate is worth to them. One method employers could use to assign costs more precisely is to raise family premiums and contributions or to move to a method of pricing coverage per person. In the absence of specific evidence on those methods, the researchers use assumptions about the health costs related to the newly covered dependents and whether those costs would be born by all workers or just those who had older dependents. If all workers, the wage offset would be $34 per year, if the more limited set, the offset would be $1556. Using survey data on wages and on health care coverage, the researchers conclude that small company workers in states that had no older dependent mandate before the federal law saw a wage decrease when the mandate was implemented but those in larger firms did not, likely because the larger firms were self-funded and not subject to state mandates. The effect seemed to be across all employees with health insurance not just those with eligible dependents. So whether workers are aware of it or not, the older dependent mandate of the reform law is likely costing them significantly in take-home earnings. That may or may not be offset by reduced out-of-pocket spending for those dependents’ health care.