Working Paper: NBER ID: w7543
Authors: Melissa A. Thomasson
Abstract: In 1954, the Internal Revenue Service stipulated that employer contributions to the health insurance plans of their employees were to be excluded from employee taxable income. Today, the tax subsidy is major feature of the U.S. health care market. This paper examines the initial effects of the tax subsidy on the demand for health insurance using previously unexamined data from 1953 and 1958. Results suggest that the tax subsidy increased the growth of group insurance, particularly among union members and employed persons. This is a critical effect because group insurance is not only less expensive than individual insurance, but it is also easier to obtain, and households with access to group health insurance are far more likely to purchase health insurance coverage than those without similar access. By increasing access to group insurance, the tax subsidy fostered an increase in the purchase of group health insurance by people who may not have purchased individual coverage, and generated institutional change as it cemented an employment-based system of group health insurance in the United States.
Keywords: health insurance; tax policy; group coverage; employment-based insurance
JEL Codes: H20; I10; N82
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Tax subsidy (H20) | Increase in group health insurance (I13) |
| Tax subsidy (H20) | Increased access to group health insurance (G52) |
| Tax subsidy (H20) | Increased number of individuals obtaining group insurance (G52) |
| Tax subsidy (H20) | Employment-based health insurance system (I13) |
| Tax subsidy (H20) | Growth of group health insurance access for employed persons (I13) |
| Tax subsidy (H20) | Growth of group health insurance access for union members (J50) |