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Worker Sorting, Taxes and Health Insurance Coverage

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  • Kevin Lang
  • Hong Kang

Abstract

We develop a model in which firms hire heterogeneous workers but must offer all workers insurance benefits under similar terms. In equilibrium, some firms offer free health insurance, some require an employee premium payment and some do not offer insurance. Making the employee contribution pre-tax lowers the cost to workers of a given employee premium and encourages more firms to charge. This increases the offer rate, lowers the take-up rate, increases (decreases) coverage among high (low) demand groups, with an indeterminate overall effect. We test the model using the expansion of section 125 plans between 1987 and 1996. The results are generally supportive.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13066.

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Date of creation: Apr 2007
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Handle: RePEc:nbr:nberwo:13066

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  1. Brown, Charles, 1980. "Equalizing Differences in the Labor Market," The Quarterly Journal of Economics, MIT Press, vol. 94(1), pages 113-34, February.
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  8. Helen Levy, 1998. "Who Pays for Health Insurance? Employee Contributions to Health Insurance Premiums," Working Papers 777, Princeton University, Department of Economics, Industrial Relations Section..
  9. Henry S. Farber & Helen Levy, 1998. "Recent Trends in Employer-Sponsored Health Insurance Coverage: Are Bad Jobs Getting Worse?," Working Papers 781, Princeton University, Department of Economics, Industrial Relations Section..
  10. Pauly, Mark V, 1986. "Taxation, Health Insurance, and Market Failure in the Medical Economy," Journal of Economic Literature, American Economic Association, vol. 24(2), pages 629-75, June.
  11. Starr-McCluer, Martha, 1996. "Health Insurance and Precautionary Savings," American Economic Review, American Economic Association, vol. 86(1), pages 285-95, March.
  12. Gruber, Jonathan & Washington, Ebonya, 2005. "Subsidies to employee health insurance premiums and the health insurance market," Journal of Health Economics, Elsevier, vol. 24(2), pages 253-276, March.
  13. Jonathan Gruber & Ebonya Washington, 2003. "Subsidies to Employee Health Insurance Premiums and the Health Insurance Market," NBER Working Papers 9567, National Bureau of Economic Research, Inc.
  14. Dranove, David & Spier, Kathryn E. & Baker, Laurence, 2000. "'Competition' among employers offering health insurance," Journal of Health Economics, Elsevier, vol. 19(1), pages 121-140, January.
  15. Jaeger, David A, 1997. "Reconciling the Old and New Census Bureau Education Questions: Recommendations for Researchers," Journal of Business & Economic Statistics, American Statistical Association, vol. 15(3), pages 300-309, July.
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