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Tax Subsidies to Employer-Provided Health Insurance

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  • Jonathan Gruber
  • James Poterba

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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Bibliographic Info

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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Publication status: published as Jonathan Gruber, James M. Poterba. "Tax Subsidies to Employer-Provided Health Insurance," in Martin Feldstein and James Poterba, editors, "Empirical Foundations of Household Taxation" University of Chicago Press (1996)
Handle: RePEc:nbr:nberwo:5147

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References

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  1. Stephen A. Woodbury & Daniel S. Hamermesh, . "Taxes, Fringe Benefits, and Faculty," Upjohn Working Papers and Journal Articles saw1992, W.E. Upjohn Institute for Employment Research.
  2. Jonathan Gruber & Alan B. Krueger, 1990. "The Incidence of Mandated Employer-Provided Insurance: Lessons from Workers' Compensation Insurance," NBER Working Papers 3557, National Bureau of Economic Research, Inc.
  3. Woodbury, Stephen A, 1983. "Substitution between Wage and Nonwage Benefits," American Economic Review, American Economic Association, vol. 73(1), pages 166-82, March.
  4. Holmer, Martin, 1984. "Tax policy and the demand for health insurance," Journal of Health Economics, Elsevier, vol. 3(3), pages 203-221, December.
  5. Feldstein, Martin & Samwick, Andrew A., 1992. "Social Security Rules and Marginal Tax Rates," National Tax Journal, National Tax Association, vol. 45(1), pages 1-22, March Cit.
  6. Marquis, M Susan & Phelps, Charles E, 1987. "Price Elasticity and Adverse Selection in the Demand for Supplementary Health Insurance," Economic Inquiry, Western Economic Association International, vol. 25(2), pages 299-313, April.
  7. Kaplow, Louis, 1992. "Income Tax Deductions for Losses as Insurance," American Economic Review, American Economic Association, vol. 82(4), pages 1013-17, September.
  8. Burman, Leonard E. & Williams, Roberton, 1994. "Tax Caps on Employment-Based Health Insurance," National Tax Journal, National Tax Association, vol. 47(3), pages 529-45, September.
  9. 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.
  10. 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.
  11. 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.
  12. 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.
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Cited by:
  1. Jonathan Gruber, 2001. "Taxes and Health Insurance," NBER Working Papers 8657, National Bureau of Economic Research, Inc.
  2. Zabinski, Daniel & Selden, Thomas M. & Moeller, John F. & Banthin, Jessica S., 1999. "Medical savings accounts: microsimulation results from a model with adverse selection," Journal of Health Economics, Elsevier, vol. 18(2), pages 195-218, April.
  3. Janet Currie & Aaron Yelowitz, 1999. "Health Insurance and Less Skilled Workers," NBER Working Papers 7291, National Bureau of Economic Research, Inc.
  4. Dizioli, Allan & Pinheiro, Roberto B., 2012. "Health insurance as a productive factor," MPRA Paper 39743, University Library of Munich, Germany.
  5. 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.
  6. 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.
  7. Miller, Nolan H., 2005. "Pricing health benefits: A cost-minimization approach," Journal of Health Economics, Elsevier, vol. 24(5), pages 931-949, September.
  8. David M. Cutler, 1996. "Public Policy for Health Care," NBER Working Papers 5591, National Bureau of Economic Research, Inc.

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