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

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Author Info
Jonathan Gruber
James M. Poterba

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Abstract

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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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: Feb 1996
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Handle: RePEc:nbr:nberwo:4435

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  1. 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. [Downloadable!] (restricted)
  2. Holmer, Martin, 1984. "Tax policy and the demand for health insurance," Journal of Health Economics, Elsevier, vol. 3(3), pages 203-221, December. [Downloadable!] (restricted)
  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. [Downloadable!] (restricted)
  4. 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. [Downloadable!] (restricted)
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  5. Vroman, Susan & Anderson, Gerard, 1984. "The Effect of Income Taxation on the Demand for Employer-Provided Health Insurance," Applied Economics, Taylor and Francis Journals, vol. 16(1), pages 33-43, February.
  6. 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. [Downloadable!] (restricted)
  7. 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. [Downloadable!] (restricted)
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