Health Insurance Taxes

Estimating the elasticity of health insurance offering for firms

One key parameter of interest to policymakers is the firms elasticity of offering health insurance with respect to price. This is an important question because the current tax exemption of employee compensation in the form health insurance in essence changes the price of health insurance. A large—in absolute value—elasticity would imply that the tax subsidy would compel a significant amount of firms to offer insurance to there employees. A small elasticity means that firms are not price sensitive and thus the tax subsidy may be ineffective in decreasing uninsurance.

Below is a brief review of the empirical findings from recent studies. The estimates are from Gruber and Lettau (2000). In the upcoming weeks, I will be analyzing some of these studies in more detail.


Data Est. Elasticity
Premium Variation    
Marquis, Long (1999) 1993 data, 10 states -0.14
Feldman, Dowd, Leitz, Blewett (1997) Small firms in MN -3.9 (single), -5.8 (fam)

Tax Rate Variation    
Leibowitz, Chernow (1992) Cross-state, small firms, -0.8 (prem), -2.9 (sub)
Royalty (1999) Cross-state, IV for MTR -0.63
Gentry, Peress (1994) Cross-city, cross state -1.8
Finkelstein (1999) DD: Quebec bill -0.42 to -.54
Gruber, Lettau (2000) Med worker MTR by firm -0.31 to -0.41


Pilot Programs    
Helms, Gauthier, Campion (1992) Randomized subsidies -.1 (UT), -.4 to -1.1 (AZ)
Thorpe (1992) Randomized subsidies -0.07 to -0.33 (NY)

Morrisey, Jensen, Merlock (1994) Survey, small firms -0.92