Impact of Enhanced Premium Tax Credits on Health Insurance and Retirement Decisions of Older Adults

• In Event: Workforce Transitions and Mobility

Abstract

People purchasing non-group health insurance through the ACA Marketplaces are eligible for premium tax credits (PTC) which gradually decrease with income. Prior to 2021, there was a PTC eligibility cliff at 400% of the federal poverty line (FPL). For 2021-2025, an enhanced PTC replaced that cliff with a smooth phase-out limiting premiums to 8.5% of household income. Older adults received the largest benefits from this change since they have the most expensive premiums. We use individual-level administrative tax data to study a 1% sample of adults age 45-64 who had employer sponsored insurance and income above 400% FPL three years prior; this sample selection avoids endogenous income reporting to qualify for subsidies. We compare individuals exposed to different PTC changes based on Marketplace premiums in their ZIP code. The average annual simulated subsidy in our sample went from $0 before the enhanced PTCs to $8,000 in the highest tercile of premiums, versus $2,300 in the lowest. Comparing the highest premium areas to the lowest, Marketplace insurance enrollment consistently increased from 2021-2023 while the likelihood of having wage income consistently decreased. The results for adults age 55-64 are twice as large as those for age 45-54. In 2023, older adults in the highest premium tercile were 0.8 percentage points more likely to have Marketplace insurance (a 56% increase) and 0.6 percentage points less likely to have wages on Form W-2 (a 0.6% decrease). These results indicate that the enhanced PTCs increased early retirement.

Authors

• Makayla Lavender, University of Nevada, Las Vegas

• Bradley T. Heim, University of Central Florida

• Ithai Lurie, U.S. Department of the Treasury

• Kye Lippold, U.S. Treasury Office of Tax Analysis