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Evaluating Effects of Tax Preferences on Health Care Spending and Federal Revenues

  • John F. Cogan
  • R. Glenn Hubbard
  • Daniel P. Kessler
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    In this paper, we calculate the consequences for health spending and federal revenues of an above-the-line deduction for out-of-pocket health spending. We show how the response of spending to this expansion in the tax preference can be specified as a function of a small number of behavioral parameters that have been estimated in the existing literature. We compare our estimates to those from other researchers. And, we use our analysis to derive some implications for tax policy toward HSAs.

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    File URL: http://www.nber.org/papers/w12733.pdf
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    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12733.

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    Date of creation: Dec 2006
    Date of revision:
    Publication status: published as Poterba, J.M. (ed.) Tax Policy and the Economy, volume 21. Cambridge: MIT Press, 2007.
    Handle: RePEc:nbr:nberwo:12733
    Note: HC PE
    Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
    Phone: 617-868-3900
    Web page: http://www.nber.org
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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. Jack, William & Sheiner, Louise, 1997. "Welfare-Improving Health Expenditure Subsidies," American Economic Review, American Economic Association, vol. 87(1), pages 206-21, March.
    3. Jack, William & Levinson, Arik & Rahardja, Sjamsu, 2006. "Employee cost-sharing and the welfare effects of flexible spending accounts," Journal of Public Economics, Elsevier, vol. 90(12), pages 2285-2301, December.
    4. Amy Finkelstein, 2007. "The Aggregate Effects of Health Insurance: Evidence from the Introduction of Medicare," The Quarterly Journal of Economics, MIT Press, vol. 122(1), pages 1-37, 02.
    5. Manning, Willard G, et al, 1987. "Health Insurance and the Demand for Medical Care: Evidence from a Randomized Experiment," American Economic Review, American Economic Association, vol. 77(3), pages 251-77, June.
    6. David M. Cutler, 1994. "A Guide to Health Care Reform," Journal of Economic Perspectives, American Economic Association, vol. 8(3), pages 13-29, Summer.
    7. Keeler, Emmett B. & Rolph, John E., 1988. "The demand for episodes of treatment in the health insurance experiment," Journal of Health Economics, Elsevier, vol. 7(4), pages 337-367, December.
    8. Baker, Laurence C., 1997. "The effect of HMOs on fee-for-service health care expenditures: Evidence from Medicare," Journal of Health Economics, Elsevier, vol. 16(4), pages 453-481, August.
    9. Eichner, Matthew J, 1998. "The Demand for Medical Care: What People Pay Does Matter," American Economic Review, American Economic Association, vol. 88(2), pages 117-21, May.
    10. Selden, Thomas M. & Moeller, John F., 2000. "Estimates of the Tax Subsidy for Employment-Related Health Insurance," National Tax Journal, National Tax Association, vol. 53(n. 4), pages 877-88, December.
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