Are Tax Subsidies for Private Medical Insurance Self-Financing? Evidence from a NHS Outpatient Microsimulation Model

Abstract

This paper analyses whether tax subsidies to private medical insurance are self-financing by means of a structural approach. We construct a simulation routine based on a microeconometric discrete choice model that allows us to evaluate the impact of premium changes on outpatient health care utilisation. We simulate the 1999 Spanish tax reform that abolished the tax deduction for expenditures on private health insurance using a representative sample of the Catalan population. Prior to this reform, foregone tax revenue arising from deductions after the purchase of private insurance amounted to 69.2 M. per year. In contrast, the elimination of the subsidies to private policies is estimated to generate an extra cost of about 5.6 M. per year.

Keywords: Health care utilisation, structural modelling, tax reform evaluation

JEL Classification: H24, I18, C25