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The Importance of Group Coverage: How Tax Policy Shaped U.S. Health Insurance

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  • Melissa A. Thomasson

Abstract

In 1954, the Internal Revenue Service stipulated that employer contributions to the health insurance plans of their employees were to be excluded from employee taxable income. Today, the tax subsidy is major feature of the U.S. health care market. This paper examines the initial effects of the tax subsidy on the demand for health insurance using previously unexamined data from 1953 and 1958. Results suggest that the tax subsidy increased the growth of group insurance, particularly among union members and employed persons. This is a critical effect because group insurance is not only less expensive than individual insurance, but it is also easier to obtain, and households with access to group health insurance are far more likely to purchase health insurance coverage than those without similar access. By increasing access to group insurance, the tax subsidy fostered an increase in the purchase of group health insurance by people who may not have purchased individual coverage, and generated institutional change as it cemented an employment-based system of group health insurance in the United States.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/000282803769206359
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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 93 (2003)
Issue (Month): 4 (September)
Pages: 1373-1384

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Handle: RePEc:aea:aecrev:v:93:y:2003:i:4:p:1373-1384

Note: DOI: 10.1257/000282803769206359
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References

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  1. Feldstein, Martin & Friedman, Bernard, 1977. "Tax subsidies, the rational demand for insurance and the health care crisis," Journal of Public Economics, Elsevier, vol. 7(2), pages 155-178, April.
  2. Daniel S. Hamermesh & Stephen A. Woodbury, 1990. "Taxes, Fringe Benefits and Faculty," NBER Working Papers 3455, National Bureau of Economic Research, Inc.
  3. Thomasson, Melissa A., 2002. "From Sickness to Health: The Twentieth-Century Development of U.S. Health Insurance," Explorations in Economic History, Elsevier, vol. 39(3), pages 233-253, July.
  4. Oaxaca, Ronald L. & Ransom, Michael R., 1994. "On discrimination and the decomposition of wage differentials," Journal of Econometrics, Elsevier, vol. 61(1), pages 5-21, March.
  5. Jonathan Gruber & James M. Poterba, 1993. "Tax Incentives and the Decision to Purchase Health Insurance: Evidence from the Self-Employed," NBER Working Papers 4435, National Bureau of Economic Research, Inc.
  6. Manning, Willard G, et al, 1987. "Health Insurance and the Demand for Medical Care: Evidence from a Randomized Experiment," American Economic Review, American Economic Association, vol. 77(3), pages 251-77, June.
  7. Madrian, Brigitte C, 1994. "Employment-Based Health Insurance and Job Mobility: Is There Evidence of Job-Lock?," The Quarterly Journal of Economics, MIT Press, vol. 109(1), pages 27-54, February.
  8. Oaxaca, Ronald, 1973. "Male-Female Wage Differentials in Urban Labor Markets," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 14(3), pages 693-709, October.
  9. Kantor, Shawn Everett & Fishback, Price V, 1996. "Precautionary Saving, Insurance, and the Origins of Workers' Compensation," Journal of Political Economy, University of Chicago Press, vol. 104(2), pages 419-42, April.
  10. Gruber, Jonathan & Madrian, Brigitte C., 1997. "Employment separation and health insurance coverage," Journal of Public Economics, Elsevier, vol. 66(3), pages 349-382, December.
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Citations

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Cited by:
  1. Craig William Perry & Harvey S. Rosen, 2001. "The Self-Employed are Less Likely to Have Health Insurance Than Wage Earners. So What?," NBER Working Papers 8316, National Bureau of Economic Research, Inc.
  2. Tracy L. Regan & Gulcin Gumus, 2006. "Tax Incentives as a Solution to the Uninsured: Evidence from the Self-Employed," Working Papers 0709, University of Miami, Department of Economics, revised Oct 2007.
  3. Gumus, Gulcin & Regan, Tracy L., 2009. "Self-Employment and the Role of Health Insurance," IZA Discussion Papers 3952, Institute for the Study of Labor (IZA).
  4. Jonathan Meer & Harvey S. Rosen, 2002. "Insurance, Health, and the Utilization of Medical Services," Working Papers 117, Princeton University, Department of Economics, Center for Economic Policy Studies..
  5. Thomasson, Melissa A., 2004. "Early evidence of an adverse selection death spiral? The case of Blue Cross and Blue Shield," Explorations in Economic History, Elsevier, vol. 41(4), pages 313-328, October.
  6. Li Sanxi & Yao Dongmin & Xiao Hao, 2013. "Contract Bargaining with a Risk-Averse Agent," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 13(1), pages 285-301, November.
  7. McGarry, Kathleen, 2002. "Public Policy and the U.S. Health Insurance Market: Direct and Indirect Provision of Insurance," National Tax Journal, National Tax Association, vol. 55(4), pages 789-827, December.
  8. Craig William Perry & Harvey Rosen, 2001. "Insurance and the Utilization of Medical Services Among the Self-Employed," CESifo Working Paper Series 580, CESifo Group Munich.
  9. Gruber, Jonathan, 2011. "The Tax Exclusion For Employer-Sponsored Health Insurance," National Tax Journal, National Tax Association, vol. 64(2), pages 511-30, June.
  10. Meer, Jonathan & Rosen, Harvey S., 2004. "Insurance and the utilization of medical services," Social Science & Medicine, Elsevier, vol. 58(9), pages 1623-1632, May.
  11. Jonathan Gruber & Helen Levy, 2009. "The Evolution of Medical Spending Risk," Journal of Economic Perspectives, American Economic Association, vol. 23(4), pages 25-48, Fall.

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