Frequently Asked Questions
Guidelines for Citing BEA Information | ID: 1033 | Created: Feb-28-2014
How will the Affordable Care Act affect BEA’s measure of personal income and outlays?
The Affordable Care Act (ACA) includes several provisions that impact the components of BEA’s personal income and outlays accounts including government social benefit payments to persons, personal taxes, personal consumption expenditures, and current transfer payments from persons to government. The major provisions and their effects on the personal income and outlays accounts are highlighted below.
Changes to funding for Medicare and Medicaid
In the national income and product accounts (NIPA), the cost of government benefits for Medicare, Medicaid, and Children’s Health Insurance Program (CHIP) are classified as social benefits. In the NIPAs, Medicare is classified as a federal social benefit; Medicaid and CHIP are classified as state and local social benefits.1 The actual purchases of health services or insurance related to these programs are classified as personal consumption expenditures (PCE).
Beginning in 2014, the ACA provides states the option of additional funding for the expansion of Medicaid to cover adults under 65 who earn up to 133% of the poverty level, as well as an extension of funding and an increased federal reimbursement rate for CHIP. These provisions will result in increased social benefits for Medicaid and CHIP. Several changes to existing programs, such as reductions to payments for Medicare Advantage and to hospitals that serve a large number of low-income patients, are projected to reduce spending for Medicare and Medicaid. The ACA-related changes in spending for these programs will be reflected in the usual source data that BEA uses for preparing its estimates, though the ACA portion may not necessarily be separately identified.
Health insurance premium tax credit
Beginning in 2014, people who work for businesses that do not offer insurance, as well as the unemployed and self-employed, can purchase health insurance through an affordable insurance exchange. Some of those people will be eligible for subsidies in the form of a tax credit, payable in advance, based on income. The premium tax credit is refundable so taxpayers who have little or no income tax liability can still benefit. In the NIPAs, the refundable portion of tax credits, such as the earned income and child care tax credits, are classified as social benefits and recorded in the year in which outlays associated with the credit are paid. BEA’s estimates of the ACA premium tax credits will be based on estimates of exchange enrollment and average premium subsidies.
The prepaid subsidy for insurance purchased through the exchange is recorded as a social benefit over the period the policy is in effect. In the subsequent year, the prepaid subsidy must be reconciled with the allowable credit for the year of coverage. Generally, taxpayers will reconcile the subsidy entitlement on their tax returns. If the subsidy received through an advance payment exceeds the amount of credit to which the taxpayer is entitled, the excess is treated as an increase in tax liability.2 If the subsidy received through an advance payment is less than the amount of the credit to which the taxpayer is entitled, the shortfall is treated as a reduction in tax and possibly results in an increased refund. The reductions or increases to tax liability will be included in the estimates of personal current taxes in the NIPAs. If the amount of the reconciled credit exceeds the tax filer’s liability, a social benefit is recorded for the difference between the additional credit and the tax liability.
Spending on health care and health insurance services
To the extent that the ACA results in changes to demand for health insurance and health care services, these effects on consumer spending will be reflected in the final source data that underlie BEA’s estimates of personal consumption expenditures (PCE). For health care, the main final source data are the Census Bureau quarterly services survey for quarterly estimates and the service annual survey for annual estimates. For health insurance, the main final source data are from the National Center for Health Statistics and from A.M. Best Co. For preliminary estimates made before the final source data are available, BEA will take account of available information on Medicaid benefits, ACA insurance exchange enrollments, and other related information in preparing the estimates of consumer spending on these services.
As part of the individual mandate provisions of the ACA, individuals that do not obtain essential coverage (with exceptions) are subject to an individual shared responsibility payment, starting in 2014. This payment is collected through tax filings, so in most cases, the payment won’t be collected by the government until 2015. In the NIPAs, this penalty payment will be recorded as a current transfer payment from persons to the federal government in the year in which it is paid.
1 Although Medicaid and CHIP are classified as state and local programs, the federal government provides significant funding for these programs, which are classified as transfer payments (grants) to the state and local government sector from the federal government in the NIPAs.
2 For those whose household income is below 400% of the federal poverty level, the amount of the increase in tax is limited to $400.
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