Working Paper: NBER ID: w23990
Authors: Andrew Samwick
Abstract: Recent federal legislation has linked the price paid for health insurance benefits to current income. Under the Patient Protection and Affordable Care Act of 2010, individuals and families with income as high as 400 percent of the federal poverty level are eligible for premium tax credits that limit their health insurance premiums to under 10 percent of their income. Under the Medicare Modernization Act of 2003, higher-income beneficiaries face income-related premiums over three times the standard premium for Part B coverage. For workers at or near retirement age, means-testing based on current income provides an incentive for early retirement, dissaving, and income manipulation, raising concerns about the efficiency of such means-testing. Further, current income is subject to short-term fluctuations, making it a noisy predictor of ability to pay. Using the Health and Retirement Study and linked Social Security earnings histories, this paper introduces a measure of lifetime income that compares favorably to current income as a basis for means-testing. It offers less short-term variation in premiums while improving incentives for pre-retirement work and saving.
Keywords: mean-testing; health insurance; lifetime income; current income; Medicare
JEL Codes: H51; I13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| current income (E25) | disincentives for work and savings (H31) |
| current income (E25) | inefficiencies in the health insurance system (I13) |
| current income (E25) | income manipulation (E25) |
| lifetime income (MAE) (J17) | more stable measure of ability to pay (G51) |
| lifetime income (MAE) (J17) | improved incentives for pre-retirement work and savings (J26) |
| lifetime income (MAE) (J17) | reduced disincentives for continued labor force participation (J26) |