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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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Suggested Citation

  • Melissa A. Thomasson, 2003. "The Importance of Group Coverage: How Tax Policy Shaped U.S. Health Insurance," American Economic Review, American Economic Association, vol. 93(4), pages 1373-1384, September.
  • Handle: RePEc:aea:aecrev:v:93:y:2003:i:4:p:1373-1384
    Note: DOI: 10.1257/000282803769206359
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    Cited by:

    1. 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.
    2. repec:pri:cepsud:85rosen is not listed on IDEAS
    3. Gulcin Gumus & Tracy Regan, 2007. "Self-Employment and the Role of Health Insurance," Working Papers 0910, University of Miami, Department of Economics.
    4. Ines Läufer, 2014. "Das Krankenversicherungssystem in den USA: Bestimmungsparameter des Angebots und der Ausgestaltungformen von Arbeitgeber-Gruppenversicherungen," Otto-Wolff-Institut Discussion Paper Series 03/2014, Otto-Wolff-Institut für Wirtschaftsordnung, Köln, Deutschland.
    5. Jonathan Meer & Harvey S. Rosen, 2002. "Insurance, Health, and the Utilization of Medical Services," Working Papers 117, Princeton University, Department of Economics, Center for Economic Policy Studies..
    6. Ines Läufer, 2014. "Unvollständige Absicherung des Krankheitskostenrisikos in den USA: Erklärungsfaktoren der Attraktivität von Arbeitgeber-Gruppenversicherungen," Otto-Wolff-Institut Discussion Paper Series 01/2014, Otto-Wolff-Institut für Wirtschaftsordnung, Köln, Deutschland.
    7. Meer, Jonathan & Rosen, Harvey S., 2004. "Insurance and the utilization of medical services," Social Science & Medicine, Elsevier, vol. 58(9), pages 1623-1632, May.
    8. Li Sanxi & Yao Dongmin & Xiao Hao, 2013. "Contract Bargaining with a Risk-Averse Agent," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 13(1), pages 285-301, November.
    9. H. Frech & Christopher Whaley & Benjamin Handel & Liora Bowers & Carol Simon & Richard Scheffler, 2015. "Market Power, Transactions Costs, and the Entry of Accountable Care Organizations in Health Care," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 47(2), pages 167-193, September.
    10. 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.
    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, vol. 41(4), pages 313-328, October.
    12. Tracy L. Regan & Gulcin Gumus, 2006. "Tax Incentives as a Solution to the Uninsured: Evidence from the Self-Employed," Working Papers 0709, University of Miami, Department of Economics, revised Oct 2007.
    13. Jonathan Gruber & Helen Levy, 2009. "The Evolution of Medical Spending Risk," Journal of Economic Perspectives, American Economic Association, vol. 23(4), pages 25-48, Fall.
    14. Ines Läufer, 2014. "Another perspective on the high uninsured-rate in the USA: Crowding out of long term health insurance by the institutional setting of the U.S. health insurance system," Otto-Wolff-Institut Discussion Paper Series 02/2014, Otto-Wolff-Institut für Wirtschaftsordnung, Köln, Deutschland.
    15. Thomas M. Selden, 2009. "The Impact of Increased Tax Subsidies on the Insurance Coverage of Self-Employed Families: Evidence from the 1996–2004 Medical Expenditure Panel Survey," Journal of Human Resources, University of Wisconsin Press, vol. 44(1).
    16. Thomasson, Melissa A., 2002. "From Sickness to Health: The Twentieth-Century Development of U.S. Health Insurance," Explorations in Economic History, Elsevier, vol. 39(3), pages 233-253, July.
    17. Jonathan Gruber, 2010. "The Tax Exclusion for Employer-Sponsored Health Insurance," NBER Working Papers 15766, National Bureau of Economic Research, Inc.
    18. 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.
    19. Gruber, Jonathan, 2011. "The Tax Exclusion for Employer-Sponsored Health Insurance," National Tax Journal, National Tax Association, vol. 64(2), pages 511-530, June.

    More about this item

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • I10 - Health, Education, and Welfare - - Health - - - General

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