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Tax Incentives and the Decision to Purchase Health Insurance: Evidence from the Self-Employed

  • Gruber, Jonathan
  • Poterba, James

The Tax Reform Act of 1986 introduced a new tax subsidy for health insurance purchases by the self-employed. We analyze the changing patterns of insurance demand before and after tax reform to generate new estimates of how the after-tax price of insurance affects the discrete choice of whether to buy insurance. We employ both traditional regression models and difference-in-difference methods that compare changes in insurance coverage across groups around TRA86. The results from our most carefully controlled comparison suggest that a 1 percent increase in the cost of insurance coverage reduces the probability that a self-employed single person will be insured by 1.8 percentage points. Copyright 1994, the President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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Article provided by MIT Press in its journal Quarterly Journal of Economics.

Volume (Year): 109 (1994)
Issue (Month): 3 (August)
Pages: 701-33

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Handle: RePEc:tpr:qjecon:v:109:y:1994:i:3:p:701-33
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  1. 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.
  2. Daniel S. Hamermesh & Stephen A. Woodbury, 1990. "Taxes, Fringe Benefits and Faculty," NBER Working Papers 3455, National Bureau of Economic Research, Inc.
  3. Feldstein, Martin & Friedman, Bernard, 1977. "Tax subsidies, the rational demand for insurance and the health care crisis," Journal of Public Economics, Elsevier, vol. 7(2), pages 155-178, April.
  4. Gruber, J., 1992. "The Efficiency of a Group-Specific Mandated Benefit: Evidence from Health Insurance Benefits for Maternity," Working papers 92-19, Massachusetts Institute of Technology (MIT), Department of Economics.
  5. Woodbury, Stephen A, 1983. "Substitution between Wage and Nonwage Benefits," American Economic Review, American Economic Association, vol. 73(1), pages 166-82, March.
  6. Holmer, Martin, 1984. "Tax policy and the demand for health insurance," Journal of Health Economics, Elsevier, vol. 3(3), pages 203-221, December.
  7. 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.
  8. Marquis, M. Susan & Long, Stephen H., 1995. "Worker demand for health insurance in the non-group market," Journal of Health Economics, Elsevier, vol. 14(1), pages 47-63, May.
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