What about all the 26 year olds?

Last updated on: January 22, 2014 at 9:29 pm by Jane the Actuary

What about all the 26 year olds? 2014-01-22T21:29:00-06:00 Jane the Actuary

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The fact that ObamaCare allows 26 year olds to stay on their parents’ health insurance is cited both as a fixed and unalterable aspect of the law, and as a potential cause of the small number of health young’uns in the individual insurance risk pools, on the expectation that the kiddies are all in the group insurance market, what with all the real grown-ups having employer-provided healthcare.

And I think both points miss the issue. Employers, so far as I can tell, have just held to the status quo and, by and large, kept to the usual simplified brackets of employee, employee + spouse, employee + children, employee + family. But their subsidies for dependents are, on average, decreasing, and many employers are now charging extra to cover a spouse who has coverage available elsewhere. There’s no magic here, nothing’s “free” — depending on the level of employer subsidies, the cost for the 26 year olds’ coverage is either coming out of the overall compensation budget or being directly paid for by the employees.

And there’s nothing fixed about this. Employers could move to charging employees per kid, and slim down their subsidies. The law requires employees to make coverage available to “adult children” but doen’t require the coverage be subsidized. Can employers differentiate between, say, under 18s and those older, in terms of the subsidy level? I’m not sure. In any case, emploeyrs can charge more for spouses who have coverage available elsewhere, so I would imagine that, at a minimum, the same would be true of those young adults to elect to stay on their parents’ plan and decline coverage offered through their own jobs. (Some details here, in a fall WSJ article on the topic — if the direct link is behind a paywall, I found it through a google search: employer health insurance age 26 charge.)

The point is, though, employers could, in principle, offer health insurance to anyone: domestic partner coverage is now fairly prevalent. In some Asian countries, employers cover the employees’ parents. The difference in the US is that tax law limits who employers can cover without the subsidy being taxable for the employee. Spouse and dependent children, yes. Roommate, no.

Is there something fixed about age 26? Why is the government in the business of telling employers the conditions under which they can offer employee benefits?

Fundamentally, I think enough changes are afoot (consider the “private exchanges”) in employer-sponsored health insurance that the notion that Sally’s 26-year old son should receive health insurance with the same subsidy level as Jack’s two year old will ultimately feel unfair to those employees, when they see their insurance premiums escalating. Rather than the 26-year old “adult children” being unassailable, it’ll be hard to defend.

As far as the individual insurance market goes, if young people are insured via their parents’ individual insurance policy, then it’s all the same risk pool, right? Or is the idea that ACA-backers want disproportionately-many young adults insured in exchange-based individual policies, for the cross-subsidies they bring?

UPDATE:
I found some material on this in my company intranet. And apparently, the regulations are very limiting: employers must cover all “dependent children” identically, and cannot change extra for children above age 18, for instance, and (on this point the material I’m looking at isn’t entirely clear) it’s also not permitted to charge extra for someone who is employed with alternate coverage available. This was surprising, and seems pretty hard to support.

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