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Subsidies to Employee Health Insurance Premiums and the Health Insurance Market

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  • Jonathan Gruber
  • Ebonya Washington

Abstract

One approach to covering the uninsured that is frequently advocated by policy makers is subsidizing the employee portion of employer-provided health insurance premiums. But, since the vast majority of those offered employer-provided health insurance already take it up, such an approach is only appealing if there is a very high takeup elasticity among those who are offered and uninsured. Moreover, if plan choice decisions are price elastic, then such subsidies can at the same time increase health care costs by inducing selection of more expensive plans. We study an excellent example of such subsidies: the introduction of pre-tax premiums for postal employees in 1994, and then for the remaining federal employees in 2000. We do so using a census of personnel records for all federal employees from 1991 through 2002. We find that there is a very small elasticity of insurance takeup with respect to its after-tax price, and a modest elasticity of plan choice. Our results suggest that the federal government did little to improve insurance coverage, but much to increase health care expenditures, through this policy change.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9567.

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Date of creation: Mar 2003
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Publication status: published as Gruber, Jonathan and Ebonya Washington. "Subsidies To Employee Health Insurance Premiums And The Health Insurance Market," Journal of Health Economics, 2005, v24(2,Mar), 253-276.
Handle: RePEc:nbr:nberwo:9567

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  1. Henry S. Farber & Helen Levy, 1998. "Recent Trends in Employer-Sponsored Health Insurance Coverage: Are Bad Jobs Getting Worse?," NBER Working Papers, National Bureau of Economic Research, Inc 6709, National Bureau of Economic Research, Inc.
  2. David M. Cutler & Sarah Reber, 1996. "Paying for Health Insurance: The Tradeoff between Competition and Adverse Selection," NBER Working Papers, National Bureau of Economic Research, Inc 5796, National Bureau of Economic Research, Inc.
  3. Buchmueller, Thomas C. & Feldstein, Paul J., 1997. "The effect of price on switching among health plans," Journal of Health Economics, Elsevier, Elsevier, vol. 16(2), pages 231-247, April.
  4. Pauly, Mark V, 1986. "Taxation, Health Insurance, and Market Failure in the Medical Economy," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 24(2), pages 629-75, June.
  5. David M. Cutler, 2003. "Employee Costs and the Decline in Health Insurance Coverage," NBER Chapters, National Bureau of Economic Research, Inc, in: Frontiers in Health Policy Research, Volume 6, pages 27-54 National Bureau of Economic Research, Inc.
  6. Helen Levy, 1998. "Who Pays for Health Insurance? Employee Contributions to Health Insurance Premiums," Working Papers, Princeton University, Department of Economics, Industrial Relations Section. 777, Princeton University, Department of Economics, Industrial Relations Section..
  7. repec:fth:prinin:398 is not listed on IDEAS
  8. David M. Cutler & Richard J. Zeckhauser, 1999. "The Anatomy of Health Insurance," NBER Working Papers, National Bureau of Economic Research, Inc 7176, National Bureau of Economic Research, Inc.
  9. Daniel Feenberg & Elisabeth Coutts, 1993. "An introduction to the TAXSIM model," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 12(1), pages 189-194.
  10. Gruber, Jonathan & McKnight, Robin, 2003. "Why did employee health insurance contributions rise?," Journal of Health Economics, Elsevier, Elsevier, vol. 22(6), pages 1085-1104, November.
  11. Roger Feldman & Kenneth E. Thorpe & Bradley Gray, 2002. "Policy Watch: The Federal Employees Health Benefits Plan," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 16(2), pages 207-217, Spring.
  12. Dranove, David & Spier, Kathryn E. & Baker, Laurence, 2000. "'Competition' among employers offering health insurance," Journal of Health Economics, Elsevier, Elsevier, vol. 19(1), pages 121-140, January.
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Cited by:
  1. Kevin Lang & Hong Kang, 2005. "Worker Sorting, Taxes and Health Insurance Coverage," Boston University - Department of Economics - Working Papers Series, Boston University - Department of Economics WP2005-011, Boston University - Department of Economics.
  2. Katherine Baicker & Helen Levy, 2007. "Employer Health Insurance Mandates and the Risk of Unemployment," NBER Working Papers, National Bureau of Economic Research, Inc 13528, National Bureau of Economic Research, Inc.
  3. Marjorie Honig & Irena Dushi, 2005. "Household Demand for Health Insurance: Price and Spouse's Coverage," Economics Working Paper Archive at Hunter College, Hunter College Department of Economics 411, Hunter College Department of Economics.
  4. Buchmueller, Thomas, 2006. "Price and the health plan choices of retirees," Journal of Health Economics, Elsevier, Elsevier, vol. 25(1), pages 81-101, January.
  5. Thomas C. Buchmueller & Sabina Ohri, 2006. "Health Insurance Take-up by the Near Elderly," NBER Working Papers, National Bureau of Economic Research, Inc 11951, National Bureau of Economic Research, Inc.
  6. M. Kate Bundorf & Bradley Herring & Mark Pauly, 2005. "Health Risk, Income, and Employment-Based Health Insurance," NBER Working Papers, National Bureau of Economic Research, Inc 11677, National Bureau of Economic Research, Inc.
  7. Helen Levy & Thomas DeLeire, 2003. "What Do People Buy When They Don't Buy Health Insurance And What Does that Say about Why They are Uninsured?," NBER Working Papers, National Bureau of Economic Research, Inc 9826, National Bureau of Economic Research, Inc.
  8. Randall Ellis & Elizabeth Savage, 2008. "Run for cover now or later? The impact of premiums, threats and deadlines on private health insurance in Australia," International Journal of Health Care Finance and Economics, Springer, Springer, vol. 8(4), pages 257-277, December.
  9. Ellen Meara & Meredith Rosenthal & Anna Sinaiko & Katherine Baicker, 2008. "State and Federal Approaches to Health Reform: What Works for the Working Poor?," NBER Working Papers, National Bureau of Economic Research, Inc 14125, National Bureau of Economic Research, Inc.

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