Employer Offers, Private Coverage, and the Tax Subsidy for Health Insurance: 1987 and 1996

Economists have long been interested in the effect of tax-based subsidies on private health insurance coverage. We examine this relationship using pooled data from the 1987 National Medical Expenditure Survey and the 1996 Medical Expenditure Panel Survey. Our main tax price elasticity estimates for employer offers and for private coverage are near the mid-point of the existing literature. However, these estimates may mask substantial differences in tax-price responsiveness across subsets of workers. Our more disaggregated analysis reveals tax price responsiveness to be significantly above average for low-income workers, workers with low health risks, and workers in small firms--precisely those groups whose continued participation in employment-related risk pooling is of greatest policy concern. In addition, we present family-level elasticities that allow for joint decision-making in two-worker families.