The Affordable Care Act and the market for higher education

Abstract: Investment in human capital is a key determinant of wages and an important contributor to economic growth. However, incomplete markets for health insurance may distort educational incentives because of the link between employment and health insurance. The Medicaid expansion of the Affordable Care Act (ACA) dramatically broadened insurance offerings, and thus may have affected people’s incentives for education. To study how increasing efficiency in insurance markets affects educational investments, we use a triple-difference strategy comparing counties with different levels of uninsurance pre-ACA and in states with different Medicaid expansion decisions across time. We find positive effects on enrollment in post-secondary education, which were concentrated in for-profit colleges that awarded short term certificates (that is, less than two-year degrees). Differential enrollment is flat for all other comparable college types. Our findings are remarkably general across various demographic groups, although the effect is statistically and economically more significant for Hispanics. We next show that the increase in enrollment led to an increase in certificates awarded, most prominently in vocational fields. This pattern is consistent with the notion that by relaxing job-lock, the ACA encouraged individuals to seek training in vocational fields—and may have further facilitated employment in industries where insurance was previously hard to obtain. Our results are robust to controlling for confounders such as the differential impact of the Great Recession, changes in state appropriations for higher education, and differences in age composition across counties, thus ruling out multiple counterfactual explanations, including the role of the young adult provision of the ACA, in contributing to our results.

Keywords: Affordable Care Act; postsecondary education; for-profit schools; health insurance; Medicaid;

JEL Classification: H4; I1; I2;

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Bibliographic Information

Provider: Federal Reserve Bank of New York

Part of Series: Staff Reports

Publication Date: 2018-10-01

Number: 873

Note: Revised October 2023.