How will changes in health insurance tax policy and employer health plan contributions affect access to health care and health care costs?

OBJECTIVE

To understand how changes in federal taxation of and employer contributions to health insurance benefits affect the decisions of firms to offer insurance, the willingness of households to purchase different health plans, and the resultant health expenditures.

DESIGN

Economic policy simulation.

SETTING

Secondary data analysis.

PARTICIPANTS

A total of 18,343 sampled families (representing 77 million total families throughout the United States) with a working household head from the 1988 Current Population Survey who were not covered by either Medicare, Medicaid, or CHAMPUS (Civilian Health and Medical Program of the Uniformed Services) insurance.

INTERVENTIONS

One intervention limits the amounts of tax-free employer contributions to health insurance premiums to 80% of our estimate of the base plan in the market and assumes that employer contributions will also be limited to this maximum. A second intervention eliminates the favorable tax treatment of employer-paid premiums altogether and assumes that employees will pay the full price of insurance.

MAIN OUTCOME MEASURES

Change in the number of working families offered employment-based insurance, change in insurance plan choice, and change in medical spending.

RESULTS

Capping the favorable tax treatment and employer contributions decreases the number of families offered employment-based insurance by approximately 91,000, increases the number of families selecting the least generous insurance plan from 20% under the current situation to 33%, and reduces overall health spending by less than 2%. By eliminating the tax exemption altogether, the number of families offered employment-based insurance decreases by approximately half a million families, the number of families selecting the least generous plan goes from 20% to 40%, and overall spending falls by about $16 billion.

CONCLUSIONS

Eliminating the tax subsidy and limiting employer-paid contributions to the low-cost plan substantially increases the number of low-income uninsured under a voluntary insurance system, decreases overall spending only modestly, but would raise tax revenues by $36 billion. These tax revenues could be used to assist low-income families to obtain insurance coverage.