IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/9567.html
   My bibliography  Save this paper

Subsidies to Employee Health Insurance Premiums and the Health Insurance Market

Author

Listed:
  • Jonathan Gruber
  • Ebonya Washington

Abstract

One approach to covering the uninsured that is frequently advocated by policy makers is subsidizing the employee portion of employer-provided health insurance premiums. But, since the vast majority of those offered employer-provided health insurance already take it up, such an approach is only appealing if there is a very high takeup elasticity among those who are offered and uninsured. Moreover, if plan choice decisions are price elastic, then such subsidies can at the same time increase health care costs by inducing selection of more expensive plans. We study an excellent example of such subsidies: the introduction of pre-tax premiums for postal employees in 1994, and then for the remaining federal employees in 2000. We do so using a census of personnel records for all federal employees from 1991 through 2002. We find that there is a very small elasticity of insurance takeup with respect to its after-tax price, and a modest elasticity of plan choice. Our results suggest that the federal government did little to improve insurance coverage, but much to increase health care expenditures, through this policy change.

Suggested Citation

  • Jonathan Gruber & Ebonya Washington, 2003. "Subsidies to Employee Health Insurance Premiums and the Health Insurance Market," NBER Working Papers 9567, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:9567
    Note: EH PE
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w9567.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. David M. Cutler, 2003. "Employee Costs and the Decline in Health Insurance Coverage," NBER Chapters, in: Frontiers in Health Policy Research, Volume 6, pages 27-54, National Bureau of Economic Research, Inc.
    2. Dranove, David & Spier, Kathryn E. & Baker, Laurence, 2000. "'Competition' among employers offering health insurance," Journal of Health Economics, Elsevier, vol. 19(1), pages 121-140, January.
    3. 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 629-675, June.
    4. Buchmueller, Thomas C. & Feldstein, Paul J., 1997. "The effect of price on switching among health plans," Journal of Health Economics, Elsevier, vol. 16(2), pages 231-247, April.
    5. Cutler, David M. & Zeckhauser, Richard J., 2000. "The anatomy of health insurance," Handbook of Health Economics, in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 11, pages 563-643, Elsevier.
    6. 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.
    7. Daniel Feenberg & Elisabeth Coutts, 1993. "An introduction to the TAXSIM model," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 12(1), pages 189-194.
    8. repec:fth:prinin:398 is not listed on IDEAS
    9. Roger Feldman & Kenneth E. Thorpe & Bradley Gray, 2002. "Policy Watch: The Federal Employees Health Benefits Plan," Journal of Economic Perspectives, American Economic Association, vol. 16(2), pages 207-217, Spring.
    10. David M. Cutler & Sarah J. Reber, 1998. "Paying for Health Insurance: The Trade-Off between Competition and Adverse Selection," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 113(2), pages 433-466.
    11. Helen Levy, 1998. "Who Pays for Health Insurance? Employee Contributions to Health Insurance Premiums," Working Papers 777, Princeton University, Department of Economics, Industrial Relations Section..
    12. Gruber, Jonathan & McKnight, Robin, 2003. "Why did employee health insurance contributions rise?," Journal of Health Economics, Elsevier, vol. 22(6), pages 1085-1104, November.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Randall Ellis & Elizabeth Savage, 2008. "Run for cover now or later? The impact of premiums, threats and deadlines on private health insurance in Australia," International Journal of Health Economics and Management, Springer, vol. 8(4), pages 257-277, December.
    2. Buchmueller, Thomas, 2006. "Price and the health plan choices of retirees," Journal of Health Economics, Elsevier, vol. 25(1), pages 81-101, January.
    3. Marjorie Honig & Irena Dushi, 2005. "Household Demand for Health Insurance: Price and Spouse's Coverage," Economics Working Paper Archive at Hunter College 411, Hunter College Department of Economics.
    4. Katherine Baicker & Helen Levy, 2008. "Employer Health Insurance Mandates and the Risk of Unemployment," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 11(1), pages 109-132, March.
    5. Ellen Meara & Meredith Rosenthal & Anna Sinaiko & Katherine Baicker, 2008. "State and Federal Approaches to Health Reform: What Works for the Working Poor?," NBER Working Papers 14125, National Bureau of Economic Research, Inc.
    6. Bundorf M. Kate & Herring Bradley & Pauly Mark V., 2010. "Health Risk, Income, and Employment-Based Health Insurance," Forum for Health Economics & Policy, De Gruyter, vol. 13(2), pages 1-35, September.
    7. Kevin Lang & Hong Kang, 2005. "Worker Sorting, Taxes and Health Insurance Coverage," Boston University - Department of Economics - Working Papers Series WP2005-011, Boston University - Department of Economics.
    8. Thomas C. Buchmueller & Sabina Ohri, 2006. "Health Insurance Take-up by the Near Elderly," NBER Working Papers 11951, National Bureau of Economic Research, Inc.
    9. Helen Levy & Thomas DeLeire, 2003. "What Do People Buy When They Don't Buy Health Insurance And What Does that Say about Why They are Uninsured?," NBER Working Papers 9826, National Bureau of Economic Research, Inc.
    10. Randall P. Ellis & Elizabeth Savage, 2008. "Run for Cover Now or Later? The impact of premiums, threats and deadlines on supplementary private health insurance in Australia," Boston University - Department of Economics - Working Papers Series wp2008-013, Boston University - Department of Economics.

    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. Gruber, Jonathan & Washington, Ebonya, 2005. "Subsidies to employee health insurance premiums and the health insurance market," Journal of Health Economics, Elsevier, vol. 24(2), pages 253-276, March.
    2. Jack, William & Levinson, Arik & Rahardja, Sjamsu, 2006. "Employee cost-sharing and the welfare effects of flexible spending accounts," Journal of Public Economics, Elsevier, vol. 90(12), pages 2285-2301, December.
    3. Lehrer, Steven F. & Pereira, Nuno Sousa, 2007. "Worker sorting, compensating differentials and health insurance: Evidence from displaced workers," Journal of Health Economics, Elsevier, vol. 26(5), pages 1034-1056, September.
    4. Kevin Lang & Hong Kang, 2005. "Worker Sorting, Taxes and Health Insurance Coverage," Boston University - Department of Economics - Working Papers Series WP2005-011, Boston University - Department of Economics.
    5. Gruber, Jonathan & McKnight, Robin, 2003. "Why did employee health insurance contributions rise?," Journal of Health Economics, Elsevier, vol. 22(6), pages 1085-1104, November.
    6. Jean Marie Abraham & William B. Vogt & Martin Gaynor, 2002. "Household Demand for Employer-Based Health Insurance," NBER Working Papers 9144, National Bureau of Economic Research, Inc.
    7. 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.
    8. David M. Cutler, 2003. "Employee Costs and the Decline in Health Insurance Coverage," NBER Chapters, in: Frontiers in Health Policy Research, Volume 6, pages 27-54, National Bureau of Economic Research, Inc.
    9. Ines Läufer, 2014. "Das Krankenversicherungssystem in den USA: Bestimmungsparameter des Angebots und der Ausgestaltungformen von Arbeitgeber-Gruppenversicherungen," Otto-Wolff-Institut Discussion Paper Series 03/2014, Otto-Wolff-Institut für Wirtschaftsordnung, Köln, Deutschland.
    10. Jessica Vistnes & Michael Morrisey & Gail Jensen, 2006. "Employer choices of family premium sharing," International Journal of Health Economics and Management, Springer, vol. 6(1), pages 25-47, March.
    11. Barton H. Hamilton & James Marton, 2008. "Employee choice of flexible spending account participation and health plan," Health Economics, John Wiley & Sons, Ltd., vol. 17(7), pages 793-813, July.
    12. Kosteas, Vasilios D. & Renna, Francesco, 2014. "Plan choice, health insurance cost and premium sharing," Journal of Health Economics, Elsevier, vol. 35(C), pages 179-188.
    13. M. Kate Bundorf, 2010. "The Effects of Offering Health Plan Choice Within Employment‐Based Purchasing Groups," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 77(1), pages 105-127, March.
    14. Steven F. Lehrer & Nuno Sousa Pereira, 2008. "Worker Sorting, Health Insurance and Wages: Further Evidence from Displaced Workers in the United States," CEF.UP Working Papers 0804, Universidade do Porto, Faculdade de Economia do Porto.
    15. Marcus C. Christiansen & Martin Eling & Jan-Philipp Schmidt & Lorenz Zirkelbach, 2016. "Who is Changing Health Insurance Coverage? Empirical Evidence on Policyholder Dynamics," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 83(2), pages 269-300, June.
    16. 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.
    17. Randall P. Ellis & Juan Gabriel Fernandez, 2013. "Risk Selection, Risk Adjustment and Choice: Concepts and Lessons from the Americas," IJERPH, MDPI, vol. 10(11), pages 1-34, October.
    18. Powell, David & Goldman, Dana, 2021. "Disentangling moral hazard and adverse selection in private health insurance," Journal of Econometrics, Elsevier, vol. 222(1), pages 141-160.
    19. Lu Ji & Fei Liu, 2007. "HMO versus non-HMO private managed care plans: an investigation on pre-switch consumption," Health Care Management Science, Springer, vol. 10(1), pages 67-80, February.
    20. Schmitz, Hendrik & Ziebarth, Nicolas R., 2011. "In Absolute or Relative Terms? How Framing Prices Affects the Consumer Price Sensitivity of Health Plan Choice," Ruhr Economic Papers 304, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.

    More about this item

    JEL classification:

    • I1 - Health, Education, and Welfare - - Health
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue

    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:9567. See general information about how to correct material in RePEc.

    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: the person in charge (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. RePEc uses bibliographic data supplied by the respective publishers.