Subsidies to Employee Health Insurance Premiums and the Health Insurance Market

42 Pages Posted: 14 Mar 2003  

Jonathan Gruber

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

Ebonya L. Washington

Yale University - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: March 2003

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

Gruber, Jonathan and Washington, Ebonya L., Subsidies to Employee Health Insurance Premiums and the Health Insurance Market (March 2003). NBER Working Paper No. w9567. Available at SSRN: https://ssrn.com/abstract=387574

Jonathan Gruber (Contact Author)

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

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Ebonya L. Washington

Yale University - Department of Economics ( email )

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United States

HOME PAGE: http://www.yale.edu/polisci/people/ewashington.html

National Bureau of Economic Research (NBER)

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United States

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