NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Tax Subsidies for Health Insurance: Evaluating the Costs and Benefits

Jonathan Gruber

NBER Working Paper No. 7553
Issued in February 2000
NBER Program(s):   HC   PE

The continued rise in the number of non-elderly Americans without health insurance has led to considerable interest in tax-based policies to raise the level of insurance coverage. This paper describes a detailed microsimulation model that has been developed to evaluate such tax-based polices, and its findings for the impact of polices on government costs and insurance coverage. I find that while tax subsidies could significantly increase insurance coverage, even very generous tax policies could not cover more than a sizable minority of the uninsured population. But there are several design features which can clearly make tax policy more effective: using tax credits rather than deductions; making credits refundable; and addressing the timing mismatch between when insurance purchases are made and tax refunds are received. I also document a clear tradeoff between the scope of tax subsidies and their efficiency.

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Published: Gruber, Jonathan and Larry Levitt. "Tax Subsidies For Health Insurance: Costs And Benefits," Health Affairs, 2000, v19(1,Feb), 72-85.

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