Tax Subsidies to Employer-Provided Health Insurance

58 Pages Posted: 26 Dec 2002 Last revised: 27 Aug 2010

See all articles by Jonathan Gruber

Jonathan Gruber

Massachusetts Institute of Technology (MIT) - Department of Economics; National Bureau of Economic Research (NBER)

James M. Poterba

National Bureau of Economic Research (NBER); Massachusetts Institute of Technology (MIT) - Department of Economics

Date Written: June 1995

Abstract

This paper investigates the current tax subsidy to employer- provided health insurance, and presents new evidence on the economic effects of various tax reforms. It argues that previous analyses have overstated the tax subsidy to employer-provided insurance by neglecting the substantial and growing importance of after-tax employee payments for employer-provided insurance, as well as the tax subsidy for extreme medical expenses, which discourages insurance purchase. Even after considering these factors, however, the net tax subsidy to employer-provided insurance is substantial, with tax factors generating an average reduction of approximately thirty percent in the price of this insurance. Reducing the tax subsidy, either by capping the value of employer-provided health insurance that could be excluded from taxation, or eliminating the exclusion entirely, would have substantial effects on the level of employer- provided insurance and on tax revenues.

Suggested Citation

Gruber, Jonathan and Poterba, James M., Tax Subsidies to Employer-Provided Health Insurance (June 1995). NBER Working Paper No. w5147. Available at SSRN: https://ssrn.com/abstract=225211

Jonathan Gruber (Contact Author)

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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James M. Poterba

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

50 Memorial Drive
E52-350
Cambridge, MA 02142
United States
617-253-6673 (Phone)
617-253-1330 (Fax)

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