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Tax Subsidies to Employer-Provided Health Insurance

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Author Info
Jonathan Gruber
James Poterba

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Abstract

This paper investigates the current tax subsidy to employer- provided health insurance, and presents new evidence on the economic effects of various tax reforms. It argues that previous analyses have overstated the tax subsidy to employer-provided insurance by neglecting the substantial and growing importance of after-tax employee payments for employer-provided insurance, as well as the tax subsidy for extreme medical expenses, which discourages insurance purchase. Even after considering these factors, however, the net tax subsidy to employer-provided insurance is substantial, with tax factors generating an average reduction of approximately thirty percent in the price of this insurance. Reducing the tax subsidy, either by capping the value of employer-provided health insurance that could be excluded from taxation, or eliminating the exclusion entirely, would have substantial effects on the level of employer- provided insurance and on tax revenues.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5147.

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Date of creation: Jun 1996
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Handle: RePEc:nbr:nberwo:5147

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Find related papers by JEL classification:
H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
H51 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Health

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Long, James E & Scott, Frank A, 1982. "The Income Tax and Nonwage Compensation," The Review of Economics and Statistics, MIT Press, vol. 64(2), pages 211-19, May. [Downloadable!] (restricted)
  2. Holmer, Martin, 1984. "Tax policy and the demand for health insurance," Journal of Health Economics, Elsevier, vol. 3(3), pages 203-221, December. [Downloadable!] (restricted)
  3. Kaplow, Louis, 1992. "Income Tax Deductions for Losses as Insurance," American Economic Review, American Economic Association, vol. 82(4), pages 1013-17, September. [Downloadable!] (restricted)
  4. Woodbury, Stephen A, 1983. "Substitution between Wage and Nonwage Benefits," American Economic Review, American Economic Association, vol. 73(1), pages 166-82, March. [Downloadable!] (restricted)
  5. Louis Kaplow, 1992. "The Income Tax as Insurance: The Casualty Loss and Medical Expense Deductions and the Exclusion of the Medical Insurance Premiums," NBER Working Papers 3723, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. Rothschild, Michael & Stiglitz, Joseph E, 1976. "Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information," The Quarterly Journal of Economics, MIT Press, vol. 90(4), pages 630-49, November.
  7. Woodbury, Stephen A & Hamermesh, Daniel S, 1992. "Taxes, Fringe Benefits and Faculty," The Review of Economics and Statistics, MIT Press, vol. 74(2), pages 287-96, May. [Downloadable!] (restricted)
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  8. Feldstein, Martin S, 1973. "The Welfare Loss of Excess Health Insurance," Journal of Political Economy, University of Chicago Press, vol. 81(2), pages 251-80, Part I, M. [Downloadable!] (restricted)
  9. Jonathan Gruber & Alan B. Krueger, 1991. "The Incidence of Mandated Employer-Provided Insurance: Lessons from Workers' Compensation Insurance," NBER Chapters, in: Tax Policy and the Economy, Volume 5, pages 111-144 National Bureau of Economic Research, Inc. [Downloadable!]
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  10. Martin Feldstein & Andrew Samwick, 1992. "Social Security Rules and Marginal Tax Rates," NBER Working Papers 3962, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Thomas Selden, 2008. "The effect of tax subsidies on high health care expenditure burdens in the United States," International Journal of Health Care Finance and Economics, Springer, vol. 8(3), pages 209-223, September. [Downloadable!] (restricted)
  2. Jonathan Gruber & Michael Lettau, 2000. "How Elastic is the Firm's Demand for Health Insurance?," NBER Working Papers 8021, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. David M. Cutler, 1996. "Public Policy for Health Care," NBER Working Papers 5591, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Janet Currie & Aaron Yelowitz, 1999. "Health Insurance and Less Skilled Workers," NBER Working Papers 7291, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
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