Changes in the demand for private medical insurance following a shift in tax incentives
AbstractThe 1998 Spanish reform of the Personal Income Tax eliminated the 15% deduction for private medical expenditures including payments on private health insurance (PHI) policies. To avoid an undesirable increase in the demand for publicly funded health care, tax incentives to buy PHI were not completely removed but basically shifted from individual to group employer-paid policies. In a unique fiscal experiment, at the same time that the tax relief for individually purchased policies was abolished, the government provided for tax allowances on policies taken out through employment. Using a bivariate probit model on data from National Health Surveys, we estimate the impact of said reform on the demand for PHI and the changes occurred within it. Our findings suggest that the total probability of buying PHI was not significantly affected. Indeed, the fall in the demand for individual policies (by 10% between 1997 and 2001) was offset by an increase in the demand for group employer-paid ones, so that the overall size of the market remained virtually unchanged. We also briefly discuss the welfare effects on the state budget, the industry and society at large.
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Bibliographic InfoPaper provided by Xarxa de Referència en Economia Aplicada (XREAP) in its series Working Papers with number CREAP2006-12.
Length: 33 pages
Date of creation: Dec 2006
Date of revision: Dec 2006
Contact details of provider:
Postal: Espai de Recerca en Economia, Facultat de Ciències Econòmiques i Empresarials, Universitat de Barcelona, c/ Tinent Coronel Valenzuela, 1-11, 08034 Barcelona
Web page: http://www.pcb.ub.edu/xreap
More information through EDIRC
Private health insurance; tax reform; Spain.;
Find related papers by JEL classification:
- I10 - Health, Education, and Welfare - - Health - - - General
- H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-05-12 (All new papers)
- NEP-HEA-2007-05-12 (Health Economics)
- NEP-IAS-2007-05-12 (Insurance Economics)
- NEP-PBE-2007-05-12 (Public Economics)
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