Subsidies to employee health insurance premiums and the health insurance market

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.

Will Tax-Based Health Insurance Reforms Help the Self-Employed Stay in Business?

“…Wiatrowski (1995) estimates that about one‐third of employees in mid‐ to large‐sized businesses had access to premium conversion in 1993 and Dowd et al (2001) report that 75% of employees of large public employers had premium conversion options as of 1994. Evidence from a 2002 survey of employers by the Kaiser Family Foundation suggests that about half of employers offer flexible benefit plans that could be used for premium conversion (Gruber and Washington 2005). Quincy (2008) estimates that more than 90% of employees in firms with more than 100 employees offer flexible benefits plans but that availability falls by firm size as 50% of workers in firms with 10–24 employees and 35% of workers in firms with 2–9 employees have access to flexible benefits plans.…”

Employer Health Insurance Offerings and Employee Enrollment Decisions

“…Blumberg, Nichols, and Banthin (2001), using the MEPS data set that contains a nationally representative sample of 6,500 workers offered insurance, find a small price elasticity of take‐up for families, and a very small and insignificant elasticity for single persons. Gruber and Washington (2003), using personnel records for all federal employees from 1991 through 2002, find a small elasticity of employer insurance take‐up with respect to its after tax price.…”

The Affordable Care Act Permits Greater Financial Rewards for Weight Loss: A Good Idea in Principle, but Many Practical Concerns Remain

“…First, externalities raise the cost of health insurance for the nonobese. Because consumer purchases of health insurance are moderately elastic to the premium (e.g., Gruber & Washington, ; Marquis & Long, ), this leads to deadweight loss in the health insurance market, and suboptimal amounts of coverage…”