IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/7543.html
   My bibliography  Save this paper

The Importance of Group Coverage: How Tax Policy Shaped U.S. Health Insurance

Author

Listed:
  • 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.

Suggested Citation

  • Melissa A. Thomasson, 2000. "The Importance of Group Coverage: How Tax Policy Shaped U.S. Health Insurance," NBER Working Papers 7543, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:7543
    Note: DAE HC PE
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w7543.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Gruber, Jonathan & Madrian, Brigitte C., 1997. "Employment separation and health insurance coverage," Journal of Public Economics, Elsevier, vol. 66(3), pages 349-382, December.
    2. Woodbury, Stephen A & Hamermesh, Daniel S, 1992. "Taxes, Fringe Benefits and Faculty," The Review of Economics and Statistics, MIT Press, vol. 74(2), pages 287-296, May.
    3. 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 251-277, June.
    4. 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.
    5. Oaxaca, Ronald, 1973. "Male-Female Wage Differentials in Urban Labor Markets," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 14(3), pages 693-709, October.
    6. Brigitte C. Madrian, 1994. "Employment-Based Health Insurance and Job Mobility: Is there Evidence of Job-Lock?," The Quarterly Journal of Economics, Oxford University Press, vol. 109(1), pages 27-54.
    7. Jonathan Gruber & James M. Poterba, 1993. "Tax Incentives and the Decision to Purchase Health Insurance: Evidence from the Self-Employed," NBER Working Papers 4435, National Bureau of Economic Research, Inc.
    8. Mark V. Pauly, 1974. "Overinsurance and Public Provision of Insurance: The Roles of Moral Hazard and Adverse Selection," The Quarterly Journal of Economics, Oxford University Press, vol. 88(1), pages 44-62.
    9. Kantor, Shawn Everett & Fishback, Price V, 1996. "Precautionary Saving, Insurance, and the Origins of Workers' Compensation," Journal of Political Economy, University of Chicago Press, vol. 104(2), pages 419-442, April.
    10. Jonathan Gruber & James Poterba, 1994. "Tax Incentives and the Decision to Purchase Health Insurance: Evidence from the Self-Employed," The Quarterly Journal of Economics, Oxford University Press, vol. 109(3), pages 701-733.
    11. 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.
    12. Oaxaca, Ronald L. & Ransom, Michael R., 1994. "On discrimination and the decomposition of wage differentials," Journal of Econometrics, Elsevier, vol. 61(1), pages 5-21, March.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Gulcin Gumus & Tracy Regan, 2006. "Tax Incentives as a Solution to the Uninsured: Evidence from the Self-Employed," Working Papers 0911, University of Miami, Department of Economics, revised Oct 2008.
    2. 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.
    3. repec:eee:labchp:v:3:y:1999:i:pc:p:3309-3416 is not listed on IDEAS
    4. Gulcin Gumus & Tracy Regan, 2007. "Self-Employment and the Role of Health Insurance," Working Papers 0910, University of Miami, Department of Economics.
    5. Liqun Liu & Andrew Rettenmaier & Thomas Saving, 2011. "The welfare gain from replacing the health insurance tax exclusion with lump-sum tax credits," International Journal of Health Economics and Management, Springer, vol. 11(2), pages 101-113, June.
    6. Fossen, Frank M. & König, Johannes, 2015. "Public health insurance and entry into self-employment," VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 112934, Verein für Socialpolitik / German Economic Association.
    7. Jonathan Gruber, 2008. "Covering the Uninsured in the U.S," NBER Working Papers 13758, National Bureau of Economic Research, Inc.
    8. Blomqvist, Ake, 1997. "Optimal non-linear health insurance," Journal of Health Economics, Elsevier, vol. 16(3), pages 303-321, June.
    9. Alison J. Wellington, 2001. "Health Insurance Coverage And Entrepreneurship," Contemporary Economic Policy, Western Economic Association International, vol. 19(4), pages 465-478, October.
    10. Jonathan Gruber, 2008. "Covering the Uninsured in the United States," Journal of Economic Literature, American Economic Association, vol. 46(3), pages 571-606, September.
    11. 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.
    12. Robert W. Fairlie & Rebecca A. London, 2009. "Race, ethnicity, and the dynamics of health insurance coverage," Research in Labor Economics, in: Amelie F. Constant & Konstantinos Tatsiramos & Klaus F. Zimmermann (ed.), Ethnicity and Labor Market Outcomes, volume 29, pages 335-373, Emerald Publishing Ltd.
    13. Heim, Bradley T. & Lurie, Ithai Z., 2010. "The effect of self-employed health insurance subsidies on self-employment," Journal of Public Economics, Elsevier, vol. 94(11-12), pages 995-1007, December.
    14. Martin Feldstein & Jonathan Gruber, 1995. "A Major Risk Approach to Health Insurance Reform," NBER Chapters, in: Tax Policy and the Economy, Volume 9, pages 103-130, National Bureau of Economic Research, Inc.
    15. David Powell, 2019. "The Distortionary Effects of the Health Insurance Tax Exclusion," American Journal of Health Economics, University of Chicago Press, vol. 5(4), pages 428-464, Fall.
    16. Sayeh S. Nikpay, 2020. "Entrepreneurship And Job Lock: The Interaction Between Tax Subsidies And Health Insurance Regulations," Contemporary Economic Policy, Western Economic Association International, vol. 38(1), pages 30-47, January.
    17. Neale Mahoney, 2011. "Bankruptcy as Implicit Health Insurance," Discussion Papers 10-023, Stanford Institute for Economic Policy Research.
    18. Jung, Juergen & Hall, Diane M. Harnek & Rhoads, Thomas, 2013. "Does the availability of parental health insurance affect the college enrollment decision of young Americans?," Economics of Education Review, Elsevier, vol. 32(C), pages 49-65.
    19. Asako S. Moriya & Kosali Simon, 2014. "Impact of Premium Subsidies on the Take-up of Health Insurance: Evidence from the 2009 American Recovery and Reinvestment Act (ARRA)," NBER Working Papers 20196, National Bureau of Economic Research, Inc.
    20. Stephan F. Gohmann, 2009. "The Effect of State Mandates on Health Insurance Premiums," Journal of Private Enterprise, The Association of Private Enterprise Education, vol. 24(Spring 20), pages 59-73.
    21. Parry, Ian W.H., 1999. "Tax Deductions, Consumption Distortions, and the Marginal Excess Burden of Taxation," Discussion Papers 10801, Resources for the Future.

    More about this item

    JEL classification:

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

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:7543. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://edirc.repec.org/data/nberrus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (email available below). General contact details of provider: https://edirc.repec.org/data/nberrus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.