SCOTUS ruled that the Affordable Care Act was a tax. A regressive tax is one that disproportionately taxes people's income at a higher rate for people with lower income than people with higher incomes.

Is the ACA a regressive tax?

Which income quintiles are most affected?

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    Given that the penalty hasn't gone into effect, this question can't be answered. – Publius Oct 26 '13 at 6:24
  • Never mind, I found a CBO report. – Publius Oct 27 '13 at 18:53

The 'tax' part only kicks in if you a) don't have insurance and b) decide not to buy insurance. So that makes this a bit trickier to answer as we have to make assumptions as to who will decide not to have health insurance.

But let's ignore that part.

If we treat it merely as a purchase one has to make, we could say it's "regressive" in the same way that buying a can of soda is "regressive". For someone that earns less money, more of their income percentage-wise has to go towards that purchase.

So, the less money you make, the more "regressive" this purchase will be.

That would be true down to the point where you meet the subsidy thresholds, which are between 100 and 400 percent of federal poverty levels. At that point, you could argue the purchase is now "progressive" in comparison.

To answer the specific questions literally:

Is the ACA a regressive tax?

No, it's not a tax. There is a penalty component, which is considered a tax by the SCOTUS.

Which income quintiles are most affected?

Hard to say with any certainty because the penalty is not tied to income, but whether or not a person chooses to avoid having a health care policy. Once we see who makes those decisions, we can then determine if they fit into particular income demographics.

It should be noted, however, that the penalty is tied to income above a certain threshold, so one would likely not consider the penalty, in and of itself, regressive.

Summary: One could argue that the concept of having to purchase insurance is regressive through a particular range of the income spectrum. The penalty for not purchasing insurance is not (again through a particular range of the income spectrum).

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    @user1873 I don't understand how that very specific example fits into your general question as to whether the ACA and/or penalty fit into a 'regressive' definitions. Maybe that's better asked as a separate question? (That is actually a question I'd like an answer to: What happens to the people that fall into the <100% of federal poverty in terms of ACA on a state-by-state basis?) – user1530 Oct 25 '13 at 22:07
  • In doing some quick googling, it appears that anyone under 133% of the poverty line threshold qualifies for federal medicaid. However, the federal government is limited in terms of how much it can penalize states that don't participate in the medicare expansion. So, for the individual that qualifies, they get health care at no cost to them and that would be considered (I presume) 'progressive'. As to how the ACA will make up that funding difference if the state doesn't contribute, I guess that's another question that needs to be figured out. – user1530 Oct 25 '13 at 22:15
  • I don't know. My understanding is that ACA will cover all medicaid for the first several years, and then the plan was to scale back the fed's share. I don't know how that works now or in the future with the states that are opting out of the medicare plan or how that works with the subsidy portion of ACA (which I think is separate from the Medicare portion) – user1530 Oct 25 '13 at 23:00
  • @DA Not all states will expand medicaid. Some refused, at their own expense. I don't believe any penalty applies to these people (and they'd likely be able to apply for a hardship exemption). – Publius Oct 26 '13 at 6:23
  • @DA, Some will not qualify for Medicaid or health exchange subsidies, "If you live in a state that isn’t expanding Medicaid you may not qualify for either Medicaid or reduced costs on a private insurance plan. It will depend on where your income falls." It would be nice if either of the answers took into account the states that don't expand Medicaid, and where the ACA tax penalty was progressive/regressive. – user1873 Oct 28 '13 at 0:21

I found a Congressional Budget Office report that should answer this question. The CBO report makes predictions as to whom will be paying penalties for not having insurance, and how much they will be paying. It notes that most people left uninsured will not be subject to the individual mandate, and will not have to pay a penalty. However, among those who do pay the penalty, most will be above the median household income, and most payment will come from them.

Here is a table of the CBO's predictions as to whom will be paying the penalty and how much they will be paying, broken down by income level.

Payment of the ACA penalty by income

The median household pays the penalty will make around 300% of the federal poverty level. Currently, the federal poverty level for a household of four is $23,550, which means that a household of four at 300% of the poverty level would be making $70,650, which is more than median household income ($51,017).

The CBO predicts that 77% of payment for the penalty will come from people making more than 300% of the federal poverty line, who comprise 49% of those paying the penalty. Those with higher incomes will end up paying proportionally more than those with lower incomes.

  • This also doesn't answer the question if the tax is regressive (paying proportionally more doesn't necessarily mean progressive/regressive (with respect to income)) . (It's a good start for an answer though), Does this take into account the states that opt out of expanded Medicaid, "you may not qualify for either Medicaid or reduced costs on a private insurance plan. It will depend on where your income falls." – user1873 Oct 28 '13 at 0:14
  • I got 77% by adding 12, 10, and 55, which is the percentage of payment paid by everyone about the 300% poverty line. And it does take into account medicaid expansion opt-outs. In terms of progressiveness with respect to income, the penalty scales with income (though there is a hard floor at $695 per person come 2016). So given that that the rich pay more, that most people paying will be above the median household income, and that the penalty scales with income, I think we can say it's progressive. – Publius Oct 28 '13 at 4:22
  • I don't think it takes the opt-out states into account, "If you make less than about $11,500 a year as a single person [...] you may not qualify for lower costs for private insurance [...] you may be eligible for Medicaid[...] based on your state’s existing rules." Texans $1236 < X < $11,490 wouldn't qualify for example, regressive QED. – user1873 Oct 28 '13 at 5:21
  • The report explicitly acknowledges that it took into account that states can opt out of medicaid. I can put this in my answer if you want. Also, I was pointing out in my answer that 50% of people paying the penalty are above 300% of the poverty line, and that 77% of penalty payment comes from those 50% of people. – Publius Oct 28 '13 at 6:18
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    It's a more specific question, it's one not relevant to the penalty itself (as states determine when they can opt out though the law originally intended strong disincentive from them doing so), and it's one considered in my answer. – Publius Oct 28 '13 at 7:35

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