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Tax Subsidies to Employer-Provided Health Insurance

In: Empirical Foundations of Household Taxation

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  • Jonathan Gruber
  • James M. Poterba

Abstract

This paper investigates the current tax subsidy to employer- provided health insurance, and presents new evidence on the economic effects of various tax reforms. It argues that previous analyses have overstated the tax subsidy to employer-provided insurance by neglecting the substantial and growing importance of after-tax employee payments for employer-provided insurance, as well as the tax subsidy for extreme medical expenses, which discourages insurance purchase. Even after considering these factors, however, the net tax subsidy to employer-provided insurance is substantial, with tax factors generating an average reduction of approximately thirty percent in the price of this insurance. Reducing the tax subsidy, either by capping the value of employer-provided health insurance that could be excluded from taxation, or eliminating the exclusion entirely, would have substantial effects on the level of employer- provided insurance and on tax revenues.
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Suggested Citation

  • Jonathan Gruber & James M. Poterba, 1996. "Tax Subsidies to Employer-Provided Health Insurance," NBER Chapters,in: Empirical Foundations of Household Taxation, pages 135-168 National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberch:6239
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Håkan Selin, 2012. "Marginal Tax Rates and Tax‐Favoured Pension Savings of the Self‐Employed: Evidence from Sweden," Scandinavian Journal of Economics, Wiley Blackwell, pages 79-100.
    2. Sewell, David, 1997. "Shifting responsibility for social services as enterprises privatize in Belarus," Policy Research Working Paper Series 1719, The World Bank.
    3. Jonathan Gruber & Michael Lettau, 2000. "How Elastic is the Firm's Demand for Health Insurance?," NBER Working Papers 8021, National Bureau of Economic Research, Inc.
    4. Gahvari, Firouz & Micheletto, Luca, 2014. "The Friedman rule in an overlapping-generations model with nonlinear taxation and income misreporting," Journal of Public Economics, Elsevier, pages 10-23.
    5. Håkan Selin, 2012. "Marginal Tax Rates and Tax‐Favoured Pension Savings of the Self‐Employed: Evidence from Sweden," Scandinavian Journal of Economics, Wiley Blackwell, pages 79-100.
    6. Thomas Selden, 2008. "The effect of tax subsidies on high health care expenditure burdens in the United States," International Journal of Health Economics and Management, Springer, pages 209-223.
    7. William G. Gale & Samuel Brown, 2013. "Tax Reform for Growth, Equity, and Revenue," Public Finance Review, , vol. 41(6), pages 721-754, November.
    8. David M. Cutler, 1996. "Public Policy for Health Care," NBER Working Papers 5591, National Bureau of Economic Research, Inc.
    9. DeVaro, Jed & Maxwell, Nan L., 2014. "The elusive wage-benefit trade-off: The case of employer-provided health insurance," International Journal of Industrial Organization, Elsevier, pages 23-37.
    10. Dizioli, Allan & Pinheiro, Roberto, 2016. "Health insurance as a productive factor," Labour Economics, Elsevier, pages 1-24.
    11. repec:eee:labchp:v:3:y:1999:i:pc:p:3309-3416 is not listed on IDEAS
    12. Jonathan Gruber, 2002. "Taxes and Health Insurance," NBER Chapters,in: Tax Policy and the Economy, Volume 16, pages 37-66 National Bureau of Economic Research, Inc.
    13. Jaspersen, Johannes G. & Richter, Andreas, 2015. "The wealth effects of premium subsidies on moral hazard in insurance markets," European Economic Review, Elsevier, vol. 77(C), pages 139-153.
    14. Janet Currie & Aaron Yelowitz, 1999. "Health Insurance and Less Skilled Workers," NBER Working Papers 7291, National Bureau of Economic Research, Inc.
    15. Miller, Nolan H., 2005. "Pricing health benefits: A cost-minimization approach," Journal of Health Economics, Elsevier, vol. 24(5), pages 931-949, September.
    16. Zabinski, Daniel & Selden, Thomas M. & Moeller, John F. & Banthin, Jessica S., 1999. "Medical savings accounts: microsimulation results from a model with adverse selection," Journal of Health Economics, Elsevier, vol. 18(2), pages 195-218, April.

    More about this item

    JEL classification:

    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H51 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Health

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