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Income Responses to the Affordable Care Act: Evidence from a Premium Tax Credit Notch

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  • Heim, Bradley T.
  • Hunter, Gillian
  • Isen, Adam
  • Lurie, Ithai Z.
  • Ramnath, Shanthi P.

Abstract

We examine responses to the ACA subsidy for Marketplace health insurance in the first year of subsidy availability. Drawing on federal tax data and focusing on a notch in the schedule where eligibility is lost, we document that taxpayers lowered their income to remain eligible for the subsidy. The observed bunching is modest relative to the size of the notch, which, consistent with larger responses we detect in additional analyses among certain subgroups, is likely explained by significant optimization frictions. Finally, we find suggestive evidence that increased deductions drive some of the response, while reduced labor supply also plays a role.

Suggested Citation

  • Heim, Bradley T. & Hunter, Gillian & Isen, Adam & Lurie, Ithai Z. & Ramnath, Shanthi P., 2021. "Income Responses to the Affordable Care Act: Evidence from a Premium Tax Credit Notch," Journal of Health Economics, Elsevier, vol. 76(C).
    • Handle: RePEc:eee:jhecon:v:76:y:2021:i:c:s0167629620310420
    DOI: 10.1016/j.jhealeco.2020.102396
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    References listed on IDEAS

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    3. Bradley Heim & Ithai Lurie & Kosali Simon, 2018. "Did the Affordable Care Act Young Adult Provision Affect Labor Market Outcomes? Analysis Using Tax Data," ILR Review, Cornell University, ILR School, vol. 71(5), pages 1154-1178, October.
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    16. Henrik J. Kleven & Mazhar Waseem, 2013. "Using Notches to Uncover Optimization Frictions and Structural Elasticities: Theory and Evidence from Pakistan," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 128(2), pages 669-723.
    17. DeLeire, Thomas & Chappel, Andre & Finegold, Kenneth & Gee, Emily, 2017. "Do individuals respond to cost-sharing subsidies in their selections of marketplace health insurance plans?," Journal of Health Economics, Elsevier, vol. 56(C), pages 71-86.
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    Cited by:

    1. Johansson, Naimi & de New, Sonja C. & Kunz, Johannes S. & Petrie, Dennis & Svensson, Mikael, 2023. "Reductions in out-of-pocket prices and forward-looking moral hazard in health care demand," Journal of Health Economics, Elsevier, vol. 87(C).
    2. Patricia H. Born & E. Tice Sirmans & Petra Steinorth, 2023. "Health insurers' use of quality improvement expenses to achieve a minimum medical loss ratio requirement," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 90(1), pages 123-154, March.
    3. Isaac, Elliott & Jiang, Haibin, 2022. "Tax-Based Marriage Incentives in the Affordable Care Act," IZA Discussion Papers 15331, Institute of Labor Economics (IZA).

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    More about this item

    Keywords

    Affordable Care Act; Insurance Subsidies; Notch; Income;
    All these keywords.

    JEL classification:

    • I24 - Health, Education, and Welfare - - Education - - - Education and Inequality
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household

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