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Health care reform bills pending in the United States Congress in 2009 generally penalize individuals in some fashion for failing to acquire health insurance coverage but subsidize individuals who purchase insurance if their income is within certain bounds. This Demonstration explores the extent of the premium subsidy provided under the two leading reform contenders, HR 3590, the Patient Protection and Affordable Care Act (Senate), and HR 3962, the Affordable Health Care for America Act (House of Representatives). These bills generally make the amount of the subsidy a function of one's income relative to the "federal poverty level". You select where the person lives as well as the size of the family. These selections determine the applicable federal poverty level. You then set the family's income using either a direct method or one in which income is a multiple of the applicable federal poverty level. You also determine the annual amount the law uses as a basis for computing the subsidy. This amount will reflect conditions in the post-reform health insurance market. The Demonstration produces a chart and a graphic. The chart shows (1) the annual premium assistance amount the taxpayers will receive in the form of a refundable credit off their federal income taxes (the subsidy); (2) the amount of the premium that will still be paid by the taxpayer; (3) the annual premium; and (4) the effect of the premium subsidy on the effective marginal tax rate on income. A value of 0.091 with respect to this last item means that the premium subsidies effectively increase the marginal rate of income taxation by 9.1%. The graphic shows how the amount of the subsidy varies as a function of income.
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