How Elastic is the Firm's Demand for Health Insurance?
We investigate the impact of tax subsidies on the firms decision to offer insurance, and on conditional firm spending on insurance. We do so using the micro-data underlying the Employee Compensation Index, which has a major advantage for this exercise: the matching of very high quality compensation data with information on a sample of workers in the firm. We find that, overall, there is a modest elasticity of insurance offering with respect to after-tax prices (elasticity of -0.31 to -0.41), but a larger elasticity of insurance spending (elasticity of 0.66 to 0.99). We also find that the elasticity of offering is driven solely by small firms, for whom the elasticity is much larger, but that spending is more elastic in large firms. We provide some evidence on how the aggregation of worker preferences determines benefits provision decisions. In particular, we find evidence to support a median voter model of benefits determination, along with some additional influence for the most highly compensated workers in the firm. Our simulation results suggest that major tax reform could lead to an enormous reduction in employer-provided health insurance spending.
|Date of creation:||Nov 2000|
|Date of revision:|
|Publication status:||published as Gruber, Jonathan and Michael Lettau. "How Elastic Is The Firm's Demand For Health Insurance?," Journal of Public Economics, 2004, v88(7-8,Jul), 1273-1293.|
|Contact details of provider:|| Postal: |
Web page: http://www.nber.org
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Woodbury, Stephen A & Hamermesh, Daniel S, 1992.
"Taxes, Fringe Benefits and Faculty,"
The Review of Economics and Statistics,
MIT Press, vol. 74(2), pages 287-96, May.
- Daniel S. Hamermesh & Stephen A. Woodbury, 1990. "Taxes, Fringe Benefits and Faculty," NBER Working Papers 3455, National Bureau of Economic Research, Inc.
- Stephen A. Woodbury & Daniel S. Hamermesh, . "Taxes, Fringe Benefits, and Faculty," Upjohn Working Papers and Journal Articles saw1992, W.E. Upjohn Institute for Employment Research.
- Marquis, M Susan & Phelps, Charles E, 1987. "Price Elasticity and Adverse Selection in the Demand for Supplementary Health Insurance," Economic Inquiry, Western Economic Association International, vol. 25(2), pages 299-313, April.
- Jonathan Gruber & James M. Poterba, 1996.
"Tax Subsidies to Employer-Provided Health Insurance,"
in: Empirical Foundations of Household Taxation, pages 135-168
National Bureau of Economic Research, Inc.
- Jonathan Gruber & James Poterba, 1995. "Tax Subsidies to Employer-Provided Health Insurance," NBER Working Papers 5147, National Bureau of Economic Research, Inc.
- 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.
- Martin Feldstein & James M. Poterba, 1996. "Empirical Foundations of Household Taxation," NBER Books, National Bureau of Economic Research, Inc, number feld96-1.
- 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.
- Jonathan Gruber & Robin McKnight, 2002.
"Why Did Employee Health Insurance Contributions Rise?,"
NBER Working Papers
8878, National Bureau of Economic Research, Inc.
- Gruber, Jonathan & McKnight, Robin, 2003. "Why did employee health insurance contributions rise?," Journal of Health Economics, Elsevier, vol. 22(6), pages 1085-1104, November.
- 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.
- Gruber, Jonathan, 2000. "Health insurance and the labor market," Handbook of Health Economics, in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 12, pages 645-706 Elsevier.
- Farber, Henry S. & Levy, Helen, 2000.
"Recent trends in employer-sponsored health insurance coverage: are bad jobs getting worse?,"
Journal of Health Economics,
Elsevier, vol. 19(1), pages 93-119, January.
- Henry S. Farber & Helen Levy, 1998. "Recent Trends in Employer-Sponsored Health Insurance Coverage: Are Bad Jobs Getting Worse?," Working Papers 781, Princeton University, Department of Economics, Industrial Relations Section..
- Henry S. Farber & Helen Levy, 1998. "Recent Trends in Employer-Sponsored Health Insurance Coverage: Are Bad Jobs Getting Worse?," NBER Working Papers 6709, National Bureau of Economic Research, Inc.
- William M. Gentry & Eric Peress, 1994. "Taxes and Fringe Benefits Offered by Employers," NBER Working Papers 4764, National Bureau of Economic Research, Inc.
- Pauly, Mark V, 1986. "Taxation, Health Insurance, and Market Failure in the Medical Economy," Journal of Economic Literature, American Economic Association, vol. 24(2), pages 629-75, June.
- Holmer, Martin, 1984. "Tax policy and the demand for health insurance," Journal of Health Economics, Elsevier, vol. 3(3), pages 203-221, December.
- Jonathan Gruber, 1998. "Health Insurance and the Labor Market," NBER Working Papers 6762, National Bureau of Economic Research, Inc.
- Roger Feldman & Bryan Dowd & Scott Leitz & Lynn A. Blewett, 1997. "The Effect of Premiums on the Small Firm's Decision to Offer Health Insurance," Journal of Human Resources, University of Wisconsin Press, vol. 32(4), pages 635-658.
- Royalty, Anne Beeson, 2000. "Tax preferences for fringe benefits and workers' eligibility for employer health insurance," Journal of Public Economics, Elsevier, vol. 75(2), pages 209-227, February.
- Jonathan Gruber, 2000. "Tax Subsidies for Health Insurance: Evaluating the Costs and Benefits," NBER Working Papers 7553, National Bureau of Economic Research, Inc.
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:8021. 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: ()
If references are entirely missing, you can add them using this form.