Two New Papers on ACA Subsidies, Reinsurance, and Hidden Marginal Tax Rates
New evidence on alternative ACA subsidies and the limits of income-based design
Two new papers examine how health insurance subsidies and AGI-linked programs shape premiums, tax rates, and long-term financial outcomes.
The first paper focuses on the Affordable Care Act and the recent debate over extension of the enhanced ACA premium tax credits. The paper finds new subsidies including expanded Medicaid and CHIP benefits and subsidized reinsurance for high cost health care cases could facilitate reduced subsidies on premiums, costs to taxpayers and improved health insurance outcomes. The paper also shows that reduced reliance on AGI-linked premium tax credits would lessen the implicit marginal tax rates created when additional income triggers subsidy phaseouts.
Allocating Health Risk in the ACA: Premiums, Reinsurance, and the Limits of Income-Linked Subsidies
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=6098606
The second paper analyzes how AGI-linked programs. (the AGI premium tax credit, Income Driven Replacement student loans and any other subsidy linked to AGI) in combination with actual federal and state income taxes impact marginal tax rates and financial decisions and outcomes during both working years and retirement. The paper demonstrates an increase in de-facto marginal tax rates stemming from new AGI-linked subsidies encourages workers to favor traditional over Roth retirement accounts, a choice that can lead to substantially higher lifetime taxation through greater exposure to Social Security benefit taxation, Medicare premium surcharges, and required minimum distributions in retirement.
Liquidity Today, Tax Traps Tomorrow: AGI-Linked Programs, Pre-Tax Saving, and the Erosion of Flexibility in Retirement
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=6101327
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