DERIVATIVE MORAL HAZARD THEORY : An Analysis of the Affordable Care Act and Dependent Insureds

Abstract

This paper examines the effects of the Affordable Care Act of Derivative Moral Hazard, a new theory for adult dependents on their parents' health insurance plan. The analyses is done through a multi-step process: Step one identifies 23--26 year olds as those most affected by the dependent extension mandate. Step two uses a truncated poisson latent class hurdle model to compare dependent medical care utilization to policy-holders and non-insureds, showing that dependents within the sample consume medical care at a higher rate as a result of twofold muted costs relative to non-insureds and muted costs relative to policy-holders. Step three uses an endogenous treatment effect poisson modeling technique to identify those who switched from dependent to policy-holder or vice versa during the panel and estimates that dependents who become policy-holders utilize medical care at one-fifth the level they did in the previous year while policy-holders who become dependent increase utilization by 124\%. All tests indicate a strong case for derivative moral hazard in the young adult cohort, ceteris paribus.