Estimates of the Tax Subsidy for Employment-Related Health Insurance (original) (raw)
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Health Services Research, 2013
ObjectiveTo estimate 2012 tax expenditures for employer‐sponsored insurance (ESI) in the United States and to explore the sensitivity of estimates to assumptions regarding the incidence of employer premium contributions.Data SourcesNationally representative Medical Expenditure Panel Survey data from the 2005–2007 Household Component (MEPS‐HC) and the 2009–2010 Insurance Component (MEPS IC).Study DesignWe use MEPS HC workers to construct synthetic workforces for MEPS IC establishments, applying the workers' marginal tax rates to the establishments' insurance premiums to compute the tax subsidy, in aggregate and by establishment characteristics. Simulation enables us to examine the sensitivity of ESI tax subsidy estimates to a range of scenarios for the within‐firm incidence of employer premium contributions when workers have heterogeneous health risks and make heterogeneous plan choices.Principal FindingsWe simulate the total ESI tax subsidy for all active, civilian U.S. work...
Tax policy toward health insurance and the demand for medical services
Journal of Health Economics, 1987
Reseachers have argued that the tax subsidy to employer-provided health insurance has led to overinsurance, excess demand for medical care, and to rapid expenditure growth in the medical care sector. This paper determines the quantitative significance of this linkage, using existing estimates of the elasticities of demand for health insurance and medical services in a static microsimulation model. We find that incorrect assumptions about the elasticities of demand and pattern of health insurance coverage led earlier researchers to overestimate the likely impact of the elimination of the tax expenditures for health insurance. We estimate, using mid-range assumptions, that complete elimination of the favorable tax treatment of employer contributions to health insurance would reduce the demand for employer-sponsored health insurance by 16-27 percent and the overall demand for medical services by about 4-6 percent and not more than 10 percent.
Journal of Health Economics, 2008
This paper develops an empirical strategy to estimate whether subsidies to private medical insurance are self-financing in countries where public and private health insurance coexist. We construct a simulation routine based on a micro econometric discrete choice model that allows us to evaluate the impact of premium changes on the utilisation of outpatient and inpatient health care services. As an application, we simulate the main feature of the 1999 Spanish income tax reform that abolished the individual tax deduction for expenditures on private health insurance. We find evidence suggesting that the fiscal subsidy is far from self-financing. This result is driven by the fact that private medical insurance holders make concurrent use of public services and by the low price elasticity of the demand for policies. JEL Codes: H24, I18, C25
A Kinked Health Insurance Market: Employer-Sponsored Insurance under the Cadillac Tax
2017
The Affordable Care Act imposes a 40 percent excise tax on high-cost “Cadillac” health insurance plans in excess of defined thresholds beginning in 2020. Using economic theory and a microsimulation model, we predict how employers will respond to the Cadillac tax by adjusting wages and health insurance benefits. In its first year, 13.34 percent of individual and 16.73 percent of family employer-sponsored health insurance plan holders will be affected by the Cadillac tax; these percentages will increase to 35.33 and 42.01 percent, respectively, by 2025. Over 99 percent of those affected will reduce their health insurance benefits to the thresholds. Effectively, the Cadillac Tax will impose a hard cap on health insurance benefits, causing a clustering of benefits at the thresholds and a sharp reduction in the variance of benefits. Revenue from the Cadillac tax through 2025 will total 204billion,allbut204 billion, all but 204billion,allbut42 million of which will stem from “indirect” revenues – health insurance benefits shifted into taxable wages. This shift will increase wage growth and decrease benefit growth for those affected by the Cadillac tax. We simulate a cap on the tax exclusion of employer-sponsored insurance premiums and conduct sensitivity analyses with linear regression metamodeling.
The Intersection of Tax and Health Care Policy
National Tax Journal, 2009
This paper discusses integrated proposals for health care reform that combine changes to the tax treatment of employersponsored insurance to improve incentives with insurance market reforms to address problems in the individual market for health insurance. Combining these two types of measures is essential to slowing the rapid increase in health care costs while taking heed of the potential acceleration of the already ongoing contraction of the employer market that would occur with changes in tax policy alone.
U.S. tax policy and health insurance demand: Can a regressive policy improve welfare?
Journal of Monetary Economics, 2009
The U.S. tax policy on health insurance is regressive because it favors only those offered group insurance through their employers, who tend to have a relatively high income. Moreover, the subsidy takes the form of deductions from the progressive income tax system, giving high-income earners a larger subsidy. To understand the effects of the policy, we construct a dynamic general equilibrium model with heterogenous agents and an endogenous demand for health insurance. We use the Medical Expenditure Panel Survey to calibrate the process for income, health expenditures, and health insurance offer status through employers and succeed in matching the pattern of insurance demand as observed in the data. We find that despite the regressiveness of the current policy, a complete removal of the subsidy would result in a partial collapse of the group insurance market, a significant reduction in the insurance coverage, and a reduction in welfare coverage. There is, however, room for raising the coverage and significantly improving welfare by extending a refundable credit to the individual insurance market.
Labor Supply Responses to Employer-Provided Health Insurance
2002
Variation in income tax policies and health insurance costs are shown to be theoretically appropriate instruments to identify endogenous firm wage and benefit offers in a labor supply model. Empirical results show that firms are more likely to provide health insurance benefits in states with high marginal income tax rates and low hospitalization costs. The model implies that over the 1983-1995 period, large increases in health insurance costs and reductions in marginal income tax rates lowered the probability of receiving health insurance benefits from employers by 10 percentage points. This decrease in benefits lowered hours of labor supply by 4-7%.
Capping the Tax Exclusion of Employer-Sponsored Health Insurance: Is Equity Feasible?
2009
Notes: This figure shows, for recipients of ESI from their own employers, the application of the tax cap proposed by the President's Advisory Panel on Federal Tax Reform. Firms are classified as having few and many older workers if 50-year-olds make up less than 20 percent and at least 60 percent, respectively, of workers at the company. For firm sizes, this figure shows the extremes of the continuum. The percentage of workers at firms of intermediate sizes who would be taxed on worker-only coverage is as follows: 10-24 employees, 19.2 percent; 25-49 employees, 16.6 percent; 50-99 workers, 19.2 percent; 100-499 workers, 19.4 percent; and 500-999 workers, 24.0 percent.