Study: Affordable Care Act subsidies effective in getting low-income families privately insured, need to be increased for middle-income families

Analysis examines the effectiveness of the tax credits for those on the margin of eligibility, highlighting implications for Congressional proposals on tax credits

RESEARCH TRIANGLE PARK, N.C. – A new study found that the tax credits offered by the Affordable Care Act (ACA) made a significant impact in getting low-income families to enroll in private health insurance. However, the tax credits offered to middle-income families may not be enough to convince them to buy private health insurance. 

In 2014, sliding scale tax credits were available for individuals who earned between $11,490 (or $15,856 for those living in a state that expanded Medicaid)* and $45,960. The study compared people just below and just above the tax credit eligibility thresholds.

The study, published in the American Journal of Health Economics, showed a large increase in people buying private insurance who were just above the lowest eligibility threshold, where the government paid for more than 80 percent of premiums. However, at the upper threshold for the tax credits, where the cost of health insurance was subsidized less than 10 percent, there were no significant changes in insurance coverage.

“A goal of ACA reform was to make private insurance more affordable for low- and middle- income people through tax credits,” said Jesse Hinde, Ph.D., an RTI International research economist and lead author of the study. “The results suggest the subsidies were high enough for low-income people, but they would need to be increased substantially to entice middle-income people to purchase private health insurance.”

Pending legislation would reduce the tax credits at all incomes or change the tax credits to a flat rate determined by age. 

“Health reform proposals by lawmakers to overhaul the tax credits would likely reduce subsidies for many low- and middle-income people,” Hinde said. “The results of this study suggest that under such a policy, fewer people would purchase private insurance,”

The study focuses on 2014, the initial year the subsidies were available. Between 2015 and 2017, premiums for the plans increased substantially for some parts of the country as well as the penalty for not having insurance.

“The subsidies actually increase as premiums increase and while there is a lot of political opposition to the mandate, there is little evidence on its impact,” Hinde said. “We do not yet know whether middle-income families are more responsive to the stick, the penalty for not getting insured, or the carrot, the tax credits.”

This study was conducted as a part of Hinde’s dissertation and was supported by a UNC Dissertation Completion Fellowship, a professional development award from RTI International, and the RTI Fellows program.

*People under the threshold could get coverage through Medicaid and therefore were not eligible for the private insurance subsidies.