Income Manipulation to Subsidized Health Insurance Programs: Evidence from Massachusetts∗

This paper analyzes the income manipulation to cutoffs in eligibility for a subsidized program in the Massachusetts health insurance reform, the state-level precursor to federal health care reform. Using data from the American Community Survey, I test for the existence of income manipulation and find clear evidence around the cutoffs of 150 percent and 300 percent of Federal Poverty Level. The lower cutoff falls between plans with zero and non-zero out-of-pocket premiums, and the effect is concentrated among the self-employed. The higher cutoff falls between plans with the largest difference of out-of-pocket premiums, and is concentrated among wage workers. Based on the evidence of manipulation, I estimate the elasticity of labor supply with respect to wage rate, and calculate the welfare loss due to the subsidized program.