Working Paper: NBER ID: w13066
Authors: Kevin Lang; Hong Kang
Abstract: We develop a model in which firms hire heterogeneous workers but must offer all workers insurance benefits under similar terms. In equilibrium, some firms offer free health insurance, some require an employee premium payment and some do not offer insurance. Making the employee contribution pre-tax lowers the cost to workers of a given employee premium and encourages more firms to charge. This increases the offer rate, lowers the take-up rate, increases (decreases) coverage among high (low) demand groups, with an indeterminate overall effect. We test the model using the expansion of section 125 plans between 1987 and 1996. The results are generally supportive.
Keywords: Health Insurance; Tax Policy; Labor Economics; Employee Premiums
JEL Codes: H22; H24; I11; J32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| tax wedge decrease (H31) | more firms charge for health insurance (G52) |
| more firms charge for health insurance (G52) | increase in offer rates (E43) |
| more firms charge for health insurance (G52) | decrease in takeup rates among workers (J29) |
| tax wedge decrease (H31) | higher proportion of firms requiring employee premiums (J32) |
| higher proportion of firms requiring employee premiums (J32) | decrease in overall health insurance coverage among low-demand groups (I13) |
| higher proportion of firms requiring employee premiums (J32) | increase in coverage among high-demand groups (G52) |
| tax wedge decrease (H31) | more unequal distribution of health insurance across skill levels (I14) |