Health insurance subsidies and the expansion of an implicit marriage penalty: a regional comparison of various means-tested programmes

ABSTRACT

Any subsidy provision for healthcare premiums, including those embedded in Affordable Care Act (ACA), has the potential to result in some couples facing an implicit penalty when married relative to unmarried. To illustrate such consequences of means-tested subsidies of health insurance premiums, we construct hypothetical households earning different levels of income who are eligible for current subsidies in the USA. and compare the estimated implicit marriage penalty faced by these households to the one faced by low-income households who are eligible for various means-tested programmes (e.g. TANF, WIC, SNAP) for each of the 48 contiguous states. We find that, like very low-income households, marriage can potentially penalize couples who receive health insurance premium subsidies by decreasing their overall disposable income by as much as 14%. We find that the ACA increases the number of households subject to marriage penalties embedded in means-tested programmes for low-income couples. This distortion will exist for any future health insurance premium subsidies that are means tested at the household income level.

KEYWORDS:

• Marriage tax
• implicit marginal tax rates

JEL CLASSIFICATION:

• I11
• I18
• R53

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ This scenario may create a marriage penalty, but is outside the scope of this analysis.

² We use the NBERs TAXSIM simulation tool using the latest available tax year. For simplicity, households are assumed to take the standard deduction.

³ We also find marriage penalties even when the combined couple’s income falls below the 400% FPL threshold. However, we find no state variation since the ACA ensures the total cost is a per cent of income, regardless of the premium cost.

⁴ Note that the disposable income when single already accounts for each person’s tax liabilities, health insurance premiums, and health care subsidies.

⁵ This is shown as a net decrease in the tax liability. We consider additional age and family composition scenarios that yield similar results. These results are available upon request.