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Changes in the demand for private medical insurance following a shift in tax incentives

  • Marisol Rodríguez

    ()

    (Grup de Recerca en Economia del Benestar (CREB, Departament de Política Econòmica i Estructura Econòmica Mundial, Universitat de Barcelona)

  • Alexandrina Stoyanova

    ()

    (Grup de Recerca en Economia del Benestar (CREB), Departament d'Economia i Empresa, Universitat de Barcelona)

Registered author(s):

    The 1998 Spanish reform of the Personal Income Tax eliminated the 15% deduction for private medical expenditures including payments on private health insurance (PHI) policies. To avoid an undesirable increase in the demand for publicly funded health care, tax incentives to buy PHI were not completely removed but basically shifted from individual to group employer-paid policies. In a unique fiscal experiment, at the same time that the tax relief for individually purchased policies was abolished, the government provided for tax allowances on policies taken out through employment. Using a bivariate probit model on data from National Health Surveys, we estimate the impact of said reform on the demand for PHI and the changes occurred within it. Our findings suggest that the total probability of buying PHI was not significantly affected. Indeed, the fall in the demand for individual policies (by 10% between 1997 and 2001) was offset by an increase in the demand for group employer-paid ones, so that the overall size of the market remained virtually unchanged. We also briefly discuss the welfare effects on the state budget, the industry and society at large.

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    File URL: http://www.pcb.ub.es/xreap/aplicacio/fitxers/CREAP2006-12.pdf
    File Function: First version, 2006
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    File URL: http://www.pcb.ub.es/xreap/aplicacio/fitxers/CREAP2006-12.pdf
    File Function: Revised version, 2006
    Download Restriction: no

    Paper provided by Xarxa de Referència en Economia Aplicada (XREAP) in its series Working Papers with number CREAP2006-12.

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    Length: 33 pages
    Date of creation: Dec 2006
    Date of revision: Dec 2006
    Handle: RePEc:xrp:wpaper:creap2006-12
    Contact details of provider: Postal: Espai de Recerca en Economia, Facultat de Ciències Econòmiques i Empresarials, Universitat de Barcelona, c/ Tinent Coronel Valenzuela, 1-11, 08034 Barcelona
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    Web page: http://www.pcb.ub.edu/xreap
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    1. Michael Hoel & Erik Magnus Sæther, 2001. "Public Health Care with Waiting Time: The Role of Supplementary Private Health Care," CESifo Working Paper Series 562, CESifo Group Munich.
    2. Johannesson, Magnus & Johansson, Per-Olov & Soderqvist, Tore, 1998. "Time spent on waiting lists for medical care: an insurance approach," Journal of Health Economics, Elsevier, vol. 17(5), pages 627-644, October.
    3. H.E. Frech Iii & Sandra Hopkins & Garry Macdonald, 2003. "The Australian Private Health Insurance Boom: Was It Subsidies Or Liberalised Regulation?," Economic Papers, The Economic Society of Australia, vol. 22(1), pages 58-64, 03.
    4. Danzon, Patricia M., 2002. "Welfare effects of supplementary insurance: a comment," Journal of Health Economics, Elsevier, vol. 21(5), pages 923-926, September.
    5. Besley, Timothy & Hall, John & Preston, Ian, 1999. "The demand for private health insurance: do waiting lists matter?," Journal of Public Economics, Elsevier, vol. 72(2), pages 155-181, May.
    6. Van de Ven, Wynand P. M. M. & Van Praag, Bernard M. S., 1981. "The demand for deductibles in private health insurance : A probit model with sample selection," Journal of Econometrics, Elsevier, vol. 17(2), pages 229-252, November.
    7. Joan Costa & Jaume Garcia, 2003. "Demand for private health insurance: how important is the quality gap?," Health Economics, John Wiley & Sons, Ltd., vol. 12(7), pages 587-599.
    8. Gertler, Paul & Sturm, Roland, 1997. "Private health insurance and public expenditures in Jamaica," Journal of Econometrics, Elsevier, vol. 77(1), pages 237-257, March.
    9. Mireia Jofre-Bonet, 2000. "Public health care and private insurance demand: The waiting time as a link," Health Care Management Science, Springer, vol. 3(1), pages 51-71, January.
    10. Beenstock, Michael & Rahav, Giora, 2002. "Testing Gateway Theory: do cigarette prices affect illicit drug use?," Journal of Health Economics, Elsevier, vol. 21(4), pages 679-698, July.
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