Health Insurance, Kids, and Cut-Rate Coverage
By Bryan Caplan
Many employer health plans cover kids for zero or near-zero marginal cost. This anomaly came up years ago on my now-defunct Armchair Economists’ Listserv, and no one had a really good explanation. Now, as you might have heard, Obamacare has legally amplified the puzzle. The NYT explains:
rules, an employer-sponsored health plan or a company selling individual
insurance policies must offer coverage to subscribers’ children up to the age of
26, regardless of whether a child lives with his or her parents, attends
college, is a dependent for income-tax purposes or receives financial support
from the parents.
Under the rules, insurers and employers must provide young adults with a
30-day opportunity to enroll in their parents’ coverage. Terms of coverage
cannot vary based on the age of young adults under 26. Thus, the White House
said, an insurer violates the law if it imposes a surcharge on premiums for
children 19 to 25.
Umm, is any charge a surcharge, or what? Here‘s what the Whitehouse says:
Same Benefits/Same Price. Any qualified young adult must be offered all of the benefit packages available to similarly situated individuals who did not lose coverage because of cessation of dependent status. The qualified individual cannot be required to pay more for coverage than those similarly situated individuals. The new policy applies only to health insurance plans that offer dependent coverage in the first place: while most insurers and employer-sponsored plans offer dependent coverage, there is no requirement to do so.
This seems like a classic case of, “If you’re not confused, you don’t understand what’s going on.” The regulation sounds like it’s forcing insurers to cover 19-25 year-old “children” at a loss. But can insurance companies fiddle with their rates enough to avoid that? It’s hard to say.
Deeper questions: If the new regs actually make it unprofitable to cover 19-25 year-olds, how will insurers respond? Will they stop covering all dependents? Raise the rates on dependents up to marginal cost? Or suck it up? How does your theory of the original “cheap/free kid coverage” affect your answer?
HT: Daniel Lurker
P.S. Notice how like almost all health insurance regulation, the mandate for 19-25 year-olds has nothing to do with moral hazard or adverse selection, and everything to do with feel-good populism. Adverse selection can rationalize mandatory insurance, but if the mandate fixes a genuine adverse selection problem, there’s no need to cap rates. Why not? Because given the assumptions, mandates are supposed to make the rates fall!