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

  • Jonathan Gruber
  • James M. Poterba

The Tax Reform Act of 1986 introduced a new tax subsidy for health insurance purchases by self-employed persons. This paper analyzes the changing patterns of insurance demand before and after this 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 for insurance demand, in which after-tax price of insurance is an explanatory variable. as well as nonparametric tests that compare changes in insurance purchases by self-employed individuals with the coincident changes for other groups. Our analysis suggests that I one percent increase in the cost of insurance coverage reduces the probability that a self-employed household will be insured by as much as 1.8 percentage points.

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File URL: http://www.nber.org/papers/w4435.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4435.

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Date of creation: Aug 1993
Date of revision:
Publication status: published as Quarterly Journal of Economics 109 (August 1994), 701-733.
Handle: RePEc:nbr:nberwo:4435
Note: AG HC PE
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  1. Jonathan Gruber, 1992. "The Efficiency of a Group-Specific Mandated Benefit: Evidence From Health Insurance Benefits for Maternity," NBER Working Papers 4157, National Bureau of Economic Research, Inc.
  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. 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.
  5. 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.
  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. Woodbury, Stephen A, 1983. "Substitution between Wage and Nonwage Benefits," American Economic Review, American Economic Association, vol. 73(1), pages 166-82, March.
  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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