The Impact of Increased Tax Subsidies on the Insurance Coverage of Self-Employed Families: Evidence from the 1996-2003 Medical Expenditure Panel Survey
- Presenter:
Chair: David Bradford; Discussant: David Bradford Wed June 7, 2006 8:00-9:30 Room 213
Over the past two decades, tax policy has provided increasing subsidies for health insurance purchased by self-employed persons. The share of premiums paid by the self employed that are excludable from federal income taxation rose from a minimal share before 1986 to 30 percent by 1996 and 100 percent as of 2003, with many states mirroring or exceeding the pace of federal change. This paper examines the impact of increased tax subsidies on the insurance coverage of self-employed workers and their families using the 1996-2003 Medical Expenditure Panel Survey. Following Gruber and Poterba (1994), the analysis examines the impact of self-employed workers’ declining tax prices, using as a control group employed workers, a group for whom tax prices held relatively constant. The analysis yields an elasticity of private coverage for adults in self-employed families that exceeds -1 in magnitude when estimated using the most widespread measure of tax price. This elasticity estimate exceeds most estimates in the literature on employed workers. Using a more comprehensive measure of the relative price of insurance, the elasticity estimate for adults in self-employed families is even larger. These results suggest that self-employed workers do respond to tax subsidies by increasing private coverage. Increased tax subsidization of self employment coverage also appears to have reduced reliance on public coverage, although the magnitude of this “reverse crowd out” is small. Tax subsidies are found to have the expected effect on the coverage of children in self-employed families, although the impact on children’s coverage is only about half of that found for adults.
