Financial Incentives on Family Formation Behavior: Evidence from Health Insurance and the United States Affordable Care Act (ACA) Dependent Coverage Mandate

Abstract

On September 2010, the ACA dependent expansion went into effect. This paper examines how a reduction in financial incentive caused by the ACA dependent expansion affected family formation habits in young adults age 19-25. I exploit the ACA dependent expansion implementation as a natural experiment that removed the financial incentive to marry for spousal healthcare coverage by providing a new channel for coverage through a parent. Using unexamined data from the Behavior Risk Factor Survey ( BRFSS) which captures the family formation habits, demographics and socioeconomic characteristics of nearly 3 million adults each year and an age/time linear probability model with DD and DDD estimations, I find that the ACA dependent expansion significantly decreased the probability to marry for affected young adults, especially those with low income, and those who were black. By contrast, cohabiting rates significantly increased, and while income did not affect an individual’s propensity to cohabit, race did significantly increase an individual’s likelihood to cohabit. Finally, my analysis indicates that the ACA dependent expansion led to a significant increase in the likelihood of young women to have out of wedlock births. Together these results demonstrate that pre-ACA dependent expansion spousal insurance served as a financial incentive to marriage, and that young adults responded to increased access to health insurance and financial changes by altering family formation behavior.