Young Earning More Due To Obamacare Thanks To Remaining On Parents’ Insurance Plan & Conservatives Distort Report On Narrow Networks

Two health care items today, one on a benefit of the Affordable Care Act and another on a news item which conservatives are distorting to attack Obamacare. First the positive news.

I have discussed the benefit of the Affordable Care Act freeing people from the “insurance trap” in which they take jobs they otherwise would not want to work at purely to obtain health insurance. Allowing people more options to obtain insurance coverage independent of large employers allows people to retire earlier if they desire, go to work for smaller companies, or even start their own companies. The Journal of Health Economics considered another group of people freed from the “insurance trap” by Obamacare–young people who are allowed to remain on their parents’ insurance policies until age 26. They found that those who lived in states with similar laws were able to go to school at an older age and this also resulted in higher wages.

Health Economist Austin Frakt looked at this study for The New York Times:

One of the earliest pieces of the health-care law to go into effect — and one of the easiest to understand — was the one that allowed adults under age 26 to remain on their parents’ insurance plan. It has long been clear that the policy has somewhat increased the insurance rate among young adults. Now a new study suggests the effects may be much broader, also leading to increases in educational attainment and the wages of young adults.

The findings suggest that the health law has given young adults more flexibility to make decisions they think are best for them financially, rather than making decisions simply to obtain health insurance. With coverage from their parents’ plans, they can remain in college or graduate school, rather than leaving to take a job that provides health insurance. The cost of college is also potentially lower for such students because some colleges require health insurance coverage, which raises the cost of attendance.

With coverage in place, once students leave school, they can consider a broader range of jobs, including some that do not offer good health insurance or any health insurance. This finding is consistent with the academic literature on “job lock,” which has consistently shown that people who do not need to take a job with employer-based coverage have more flexibility, resulting in better employment matches with higher wages on average.

The Affordable Care Act appears to have increased health-insurance coverage among people under 26 by about 3 to 7 percentage points, academic research has found. The new study, published in the Journal of Health Economics, does not directly examine the health-care law, though. (It’s too recent to know its long-term effects.)

The study instead examines the earlier state-based laws with similar requirements that adult children be able to remain on their parents’ plans. It found that for people who were at least 18 at the time a coverage law was passed, wages earned after age 22 increased by about 2 percent. An increase in education drove the wage boost for men.

No similar educational effect was found for women, yet their wages increased as well. Those wage gains may stem from the new employment flexibility the law gives young women, allowing them to avoid job lock.

If anything, the Affordable Care Act may have a bigger effect than the state-based laws, because it has a broader mandate. While the state laws don’t apply to all types of employers, the federal law does. The new study estimates that the law will lead to sustained wage increases for affected young adults closer to 4 percent.

The New York Times also has an article on the trend for insurance companies to use narrower panels of physicians to cut costs. While several conservative sites are quoting this article to attack Obamacare, the article points out that this trend actually started in the 1990’s and has become increasingly common in all forms of insurance, not just plans sold on the exchanges. The article specifically points out that  “Smaller networks are also becoming more common in health care coverage offered by employers and in private Medicare Advantage plans.”  It also notes that “In 2010, 24 percent of the largest employers offered smaller networks, chosen for their low costs or quality. Last year, 27 percent offered them and 44 percent said they were considering them…”

The Affordable Care Act preserves the dominant role of private insurance companies. As a result, it does not prevent private insurance companies from continuing the trend towards smaller networks, but this is also not something developed because of the Affordable Care Act. The difference is that there are new regulations on insurance companies requiring that they maintain an adequate network of physicians. There are also a variety of policies available on the exchanges. Many people chose the less expensive plans (often free to those who receive subsidies) with narrower networks, but also have a choice of other plans which would give them a greater choice of physicians and hospitals.

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