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Incentive(less)? The Effectiveness of Tax Credits and Cost-Sharing Subsidies in the Affordable Care Act

Author

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  • Jesse M. Hinde

    (RTI International; Department of Public Policy, University of North Carolina at Chapel Hill)

Abstract
The Patient Protection and Affordable Care Act introduced several new policies in 2014, including subsidized private coverage. Individuals gain eligibility to substantial tax credits and cost-sharing reductions at 100 percent (138 percent in Medicaid expansion states) of the federal poverty level (FPL), lose eligibility for cost-sharing reductions at 250 percent FPL, and lose eligibility for the tax credits at 400 percent FPL. Using the Current Population Survey and a regression discontinuity design, this study exploits the exogenous differences in subsidy eligibility in 2014 at three cutoffs to identify the separate and combined effects of the tax credits and cost-sharing reductions on private insurance coverage. I estimate a 5.4 percentage point increase in private insurance coverage just above 138 percent FPL in Medicaid expansion states and a smaller effect above 100 percent FPL in non-expansion states attributable to the combined incentives. I calculate a price elasticity of demand for health insurance of −0.65, suggesting low-income individuals may be highly price responsive. Coverage increases do not appear to be driven by adverse selection, and there is no evidence of crowding out or income manipulation around the cutoffs. Tax credit and cost-sharing reduction levels would need to be raised at higher incomes to induce more participation.

Suggested Citation

  • Jesse M. Hinde, 2017. "Incentive(less)? The Effectiveness of Tax Credits and Cost-Sharing Subsidies in the Affordable Care Act," American Journal of Health Economics, University of Chicago Press, vol. 3(3), pages 346-369, Summer.
    • Handle: RePEc:ucp:amjhec:v:3:y:2017:i:3:p:346-369
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    File URL: https://www.journals.uchicago.edu/doi/pdf/10.1162/AJHE_a_00078
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    Citations

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    Cited by:

    1. Samuel Dodini, 2023. "Insurance Subsidies, the Affordable Care Act, and Financial Stability," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 42(1), pages 97-136, January.
    2. Kurt Lavetti & Thomas DeLeire & Nicolas R. Ziebarth, 2023. "How do low‐income enrollees in the Affordable Care Act marketplaces respond to cost‐sharing?," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 90(1), pages 155-183, March.
    3. Charles Courtemanche & James Marton & Benjamin Ukert & Aaron Yelowitz & Daniela Zapata, 2019. "Effects of the Affordable Care Act on Health Behaviors After 3 Years," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 45(1), pages 7-33, January.
    4. Naomi Zewde, 2020. "The individual welfare effects of the Affordable Care Act for previously uninsured adults," International Journal of Health Economics and Management, Springer, vol. 20(2), pages 121-143, June.
    5. Isaac, Elliott & Jiang, Haibin, 2022. "Tax-Based Marriage Incentives in the Affordable Care Act," IZA Discussion Papers 15331, Institute of Labor Economics (IZA).
    6. Richard Domurat & Isaac Menashe & Wesley Yin, 2019. "The Role of Behavioral Frictions in Health Insurance Marketplace Enrollment and Risk: Evidence from a Field Experiment," NBER Working Papers 26153, National Bureau of Economic Research, Inc.
    7. Gallagher, Emily A. & Gopalan, Radhakrishnan & Grinstein-Weiss, Michal, 2019. "The effect of health insurance on home payment delinquency: Evidence from ACA Marketplace subsidies," Journal of Public Economics, Elsevier, vol. 172(C), pages 67-83.
    8. Courtemanche, Charles & Marton, James & Ukert, Benjamin & Yelowitz, Aaron & Zapata, Daniela, 2018. "Effects of the Affordable Care Act on Health Behaviors after Three Years," IZA Discussion Papers 11468, Institute of Labor Economics (IZA).
    9. Judith Liu & Yuting Zhang, 2023. "Elderly responses to private health insurance incentives: Evidence from Australia," Health Economics, John Wiley & Sons, Ltd., vol. 32(12), pages 2730-2744, December.

    More about this item

    Keywords

    health reform; premium tax credit; cost-sharing; health insurance; regression discontinuity;
    All these keywords.

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • I1 - Health, Education, and Welfare - - Health

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