Association for Public Policy Analysis & Management

The US Supreme Court’s decision in National Federation of Independent Business v. Sebelius gave states the option of declining to expand Medicaid eligiblity under the Affordable Care Act (ACA). Refundable, advanceable “premium tax credits” that subsidize privately purchased insurance are available for households with income between 100 percent and 400 percent of the federal poverty level (FPL), but pre-ACA Medicaid eligibility thresholds were often well below the FPL. States that chose not to expand Medicaid eligiblity therefore created a large upward notch in the post-tax income schedule at the FPL, as well as a “coverage gap,” an income range in which no form of subsidized health insurance coverage is available. Residents of those states whose income had fallen in that range have a strong incentive to reach the FPL in order to receive the premium tax credits. Using the universe of tax returns, we document bunching in the income distribution surrounding this notch. Consistent with Saez (2010), we find that bunching occurs only among filers with self-employment income. Specifically, filers without children and married filers with one or two children exhibit significant bunching. Analysis of tax data linked to labor supply measures from the American Community Survey, however, suggests that this bunching likely reflects a simple change in reported income rather than a change in true labor supply. Among filers who are not self-employed, a difference-in-discontinuities analysis shows that the premium tax credits increased the rate at which people are covered by directly purchased health insurance (which the credits subsidize) by about 1.4 to 2.0 percentage points. Point estimates imply roughly 20 percent crowdout of other types of health insurance coverage. We also find an increase in unemployment driven largely by a reduction in non-participation. We find no change in employment on either the extensive or intensive margins due to the tax credits.