Today’s Managing Health Care Costs Number is NOT likely $1200
Today’s Wall Street Journal editorial entitled “The Obamacare $1200 pay cut” trumpets that “ the cost of insuring your 26 year old is more than you thought.
The article cites research from Stanford and Harvard published on the National Bureau of Economic Research website earlier this month. From the abstract:
Using data from the Survey of Income and Program Participation (SIPP), we find that workers at firms with employer-based coverage – whether or not they have dependent children – experience an annual reduction in wages of approximately $1,200. Our results imply that the marginal costs of mandated employer-based coverage expansions are not entirely borne only by the people whose coverage is expanded by the mandate.
I was surprised how high this number is. Young adults are generally the least expensive demographic group – especially males. The main source of medical claims cost in this group is pregnancies – and many pregnant young adults will either be eligible for their own employer-sponsored health insurance, or they will be eligible for Medicaid. Medicaid funded 45% of all deliveries in the US even before the ACA Medicaid expansion.
The authors state that total medical costs for those 19-26 are $48 billion. Based on 30 million of this age- the cost of medical care per person is about $1600. So it’s a surprise that the cost per employee would be $1200 (there are roughly 4 times as many Americans 26-65 as there are 19-26).
The researchers’ simulations show that the cost of mandating employer coverage of young adult dependents could range from $50 per employee to over $1500 per employee. The cost in terms of lost wages is dependent on
- The number of young adults who move to their parents’ plans
o The authors state this is 9%, but assume it could go as high as 33%
- The portion of workers whose wages are adjusted to account for the extra cost of covering these young adults
o The authors conclude that this cost will be attributed to only a small portion of the workforce; I expect it will be spread more widely)
- The portion of the increased cost which is reflected in lower wages
o Generally only around 25% - although there is disagreement about this.
Note that y axis is % of adults who enroll in their parents’ plans., and the x axis is the percent of employees who are “charged” with the extra cost of this insurance. The authors state that this is 9% now – and so you see that the likely cost per employee is only >$300 if the cost is shared by less than 20% of the working population.
The researchers settle on $1200, on the high end of the possible costs – but this means that relatively few workers are affected. The Wall Street Journal’s assumption that eliminating this coverage mandate will substantially lower the cost of health insurance for all (or will substantially raise wages) is unfounded.
It’s instructive to read some of the vitriol in WSJ readers’ comments. Middle age workers complain about mandates to cover maternity care, which they won’t need. Many worry that young adults will be infantilized by not being financially responsible – and some even suggest “locking the door” when children turn 18. Many of the correspondents clearly don’t understand or accept the idea of insurance as pooled risk. I want maternity coverage to be required in health plans because I don’t want young parents to be pauperized by their maternity costs. I'm relieved if leukemia is covered even though I don’t have leukemia.
Some argue that health insurance has a substantial amount of “deadweight loss” because it encourages overutilization and purchase of services that patients would otherwise forego. I think we need to focus on the benefit from protection against the financial uncertainty of uncovered cost, and the social benefit of being sure that health care is not out of reach for Americans.
The cost of mandating coverage of young adults by employer sponsored health plans was modest, and came at a time when the Great Recession created the most challenging job market in a generation for young adults. Parental coverage led to many young people having the freedom to start their own businesses – and kept many families out of medical debt in the rare instances that their adult children did suffer dreadful and expensive illnesses.
