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

62 Pages Posted: 10 Apr 2016 Last revised: 20 Oct 2016

See all articles by Jesse Hinde

Jesse Hinde

University of North Carolina (UNC) at Chapel Hill, College of Arts and Sciences, Department of Public Policy, Students; RTI International

Date Written: October 1, 2016

Abstract

The Patient Protection and Affordable Care Act (ACA) introduced several new policies in 2014, including an individual mandate, expanded Medicaid eligibility, and subsidized private coverage. Private subsidies include advance premium tax credits (APTCs) and cost-sharing reductions (CSRs). Individuals gain eligibility for APTCs and CSRs at 100% (138% in Medicaid expansion states) of the Federal Poverty Level (FPL), lose eligibility for CSRs at 250% FPL, and lose eligibility for the APTCs at 400% FPL. Using the Current Population Survey (CPS) 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 APTCs and CSRs on private insurance coverage. I estimate a 4.8 to 5.4 percentage point increase in private insurance coverage just above 138% FPL in Medicaid expansion states and a smaller effect above 100% FPL in non-expansion states attributable to the combined incentives. I calculate a demand elasticity for health insurance of -0.65 to -0.58, which is higher than most estimates in the literature, suggesting low-income individuals may be relatively more price responsive. There is no evidence of an effect on private health insurance at 250% FPL, attributable solely to the CSRs, and suggestive effects at 400% FPL, attributable to only the APTCs. 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. APTC and CSR levels would need to be raised at higher incomes to induce more participation.

Keywords: premium tax credits, health insurance, health reform, regression discontinuity

JEL Classification: H2, I1

Suggested Citation

Hinde, Jesse, Incentive(less)? The Effectiveness of Tax Credits and Cost-Sharing Subsidies in the Affordable Care Act (October 1, 2016). Available at SSRN: https://ssrn.com/abstract=2760130 or http://dx.doi.org/10.2139/ssrn.2760130

Jesse Hinde (Contact Author)

University of North Carolina (UNC) at Chapel Hill, College of Arts and Sciences, Department of Public Policy, Students ( email )

Abernathy Hall
Chapel Hill, NC 27599-3435
United States

RTI International ( email )

PO Box 12194
Research Triangle Park, 27709
United States

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