Health Coverage and Labor Market Transitions at Age 26: Evidence from Linked Tax Records on the ACA Dependent Coverage Mandate

• In Event: Health and Economic Outcomes

Abstract

The Affordable Care Act’s (ACA) Dependent Coverage provision requires insurers to allow dependents to remain on their parents’ health plans until age 26. While young adults have the lowest rates of insurance coverage, limited research has evaluated the realized effects of this mandate on both coverage rates and types. Most existing studies are anticipatory, with few leveraging observed data; Heim et al. (2015; 2018) are notable exceptions using panel tax data.
This paper addresses two questions: (1) How does the ACA’s dependent coverage policy affect insurance rates and types among individuals near age 26? (2) What are its effects on industry selection and employment benefits?
I use a multi-year panel dataset from the Social Security Administration’s DM1 file for individuals born 1994–2001, linked to IRS Forms 1095 (monthly coverage) and 1040 (income tax returns) from 2021–2023. Preliminary findings suggest the mandate is binding around individuals’ 26th birthdays. There is a clear extensive margin response, as overall insurance take-up drops, and an intensive margin shift as individuals transition from dependent employer-sponsored insurance (ESI) to their own ESI or ACA Marketplace coverage.
Next steps include implementing a fuzzy regression discontinuity design (RDD) to better identify causal impacts and linking IRS Form W-2 data to assess changes in industry and employment-related benefits.
These results raise key policy questions: What are the effects of a sharp “coverage cliff” on a population with historically low insurance rates? And which subgroups of young adults are most or least responsive to this policy design?

Author

• Ruth Payne, ruth.payne@treasury.gov