Income dynamics and the Affordable Care Act.

Provisions intended to help low- and moderate-income families obtain health insurance coverage are central components of the Affordable Care Act (ACA). These provisions include eligibility for Medicaid for individuals with family incomes up to 138 percent of the federal poverty level (FPL hereafter), premium tax credits and subsidized reduced cost sharing on a sliding scale for individuals with family incomes 138–250 percent of the FPL, and sliding-scale premium tax credits alone for individuals with family incomes 250–400 percent of the FPL.1 While this tiered structure is straightforward in conception, the fact that family incomes are dynamic poses challenges for achieving the goal of universal health insurance using such a structure. To the extent that an individual spends periods within a year in different income categories, the goal of seamless universal coverage may become more difficult to attain. This has important implications both for individuals' health—as research has shown that transitions in coverage are associated with reductions in use of care—and for their economic well-being. Although the reform law requires that enrollment in Medicaid (and CHIP for children) and in the plans offered through the insurance exchanges be coordinated, frequent or significant changes in subsidy status make such coordination substantially more challenging. In addition, the Supreme Court decision making the Medicaid expansion optional for states means that in some states, income changes may lead not only to changes in coverage types but also to changes in insured status. If movement between eligibility groups occurs frequently, states must be prepared for frequent redeterminations of eligibility and movement across subsidy categories. Moreover, as the premium subsidy is being implemented via a refundable, advanceable federal income tax credit, families that qualify for one level of subsidy at the time of application and receive an advance based on that level may actually qualify for a different level when their income is averaged over the entire tax year. Despite the importance of within-year income movements for subsidy and other public program eligibility, there has been little research on the determinants of such movements. Research on family income dynamics in labor economics has focused on movements across, rather than within, years, and while there is substantial research on employment and welfare participation dynamics, income volatility may arise from a variety of sources, including changes in family composition (potentially changing both the earnings contributions of family members and the income-to-needs ratio), movements into and out of employment, movements from one job to another, and earnings volatility within jobs, as well as changes in unearned income. In this paper, I use data from the Survey of Income and Program Participation to investigate the sources of income dynamics sufficient to move individuals into, out of, and across four broad income groups corresponding to the various types of insurance subsidies under the ACA outlined earlier (<138 percent of the FPL, 138–250 percent of the FPL, 250–400 percent of the FPL, and above 400 percent of the FPL). Knowledge about what factors lead to such movements and the circumstances of the families to which they occur will help policy makers implement the reform in such a way as to minimize the burden on families and reduce administrative costs for states.