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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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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 7543.

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Date of creation: Feb 2000
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Publication status: published as "From Sickness To Health: The Twentieth-Century Development Of U.S. Health Insurance," Explorations in Economic History, Vol. 39, no. 3 (July 2002): 233-253
Handle: RePEc:nbr:nberwo:7543

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  1. Gruber, Jonathan & Madrian, Brigitte C., 1997. "Employment separation and health insurance coverage," Journal of Public Economics, Elsevier, Elsevier, vol. 66(3), pages 349-382, December.
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  4. Kantor, Shawn Everett & Fishback, Price V, 1996. "Precautionary Saving, Insurance, and the Origins of Workers' Compensation," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 104(2), pages 419-42, April.
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  6. Feldstein, Martin & Friedman, Bernard, 1977. "Tax subsidies, the rational demand for insurance and the health care crisis," Journal of Public Economics, Elsevier, Elsevier, vol. 7(2), pages 155-178, April.
  7. Thomasson, Melissa A., 2002. "From Sickness to Health: The Twentieth-Century Development of U.S. Health Insurance," Explorations in Economic History, Elsevier, Elsevier, vol. 39(3), pages 233-253, July.
  8. Gruber, Jonathan & Poterba, James, 1994. "Tax Incentives and the Decision to Purchase Health Insurance: Evidence from the Self-Employed," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 109(3), pages 701-33, August.
  9. 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, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 14(3), pages 693-709, October.
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Cited by:
  1. 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.
  2. Tracy L. Regan & Gulcin Gumus, 2006. "Tax Incentives as a Solution to the Uninsured: Evidence from the Self-Employed," Working Papers, University of Miami, Department of Economics 0709, University of Miami, Department of Economics, revised Oct 2007.
  3. Jonathan Meer & Harvey S. Rosen, 2002. "Insurance, Health, and the Utilization of Medical Services," Working Papers, Princeton University, Department of Economics, Center for Economic Policy Studies. 117, Princeton University, Department of Economics, Center for Economic Policy Studies..
  4. Jonathan Gruber & Helen Levy, 2009. "The Evolution of Medical Spending Risk," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 23(4), pages 25-48, Fall.
  5. Li Sanxi & Yao Dongmin & Xiao Hao, 2013. "Contract Bargaining with a Risk-Averse Agent," The B.E. Journal of Theoretical Economics, De Gruyter, De Gruyter, vol. 13(1), pages 285-301, November.
  6. 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.
  7. Gruber, Jonathan, 2011. "The Tax Exclusion For Employer-Sponsored Health Insurance," National Tax Journal, National Tax Association, vol. 64(2), pages 511-30, June.
  8. 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).
  9. 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.
  10. Meer, Jonathan & Rosen, Harvey S., 2004. "Insurance and the utilization of medical services," Social Science & Medicine, Elsevier, Elsevier, vol. 58(9), pages 1623-1632, May.
  11. 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, Elsevier, vol. 41(4), pages 313-328, October.

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