NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Tax Credits and the Use of Medical Care

Michael Smart, Mark Stabile

NBER Working Paper No. 9855
Issued in July 2003
NBER Program(s):   HE   PE

Several recent proposals have advocated using the income tax system to collect user fees to help fund the health care system. While there is a considerable amount of research investigating both how individuals respond to tax incentives for employer provided health insurance and on the effects of user fees payable at the point of service on the use of health care services, there is limited evidence on how individuals respond to tax incentives when these are not realized until taxes are paid. This paper uses existing exemptions in the Canadian tax code that allow individuals to deduct the cost of health care or health insurance from their taxable income in order to identify the tax price elasticity of demand for health care when price changes are realized at the end of the tax year. Our results suggest that despite not realizing the tax benefit at the time of purchase, individuals are quite responsive to changes in the tax price of health care. Our elasticity estimates for a wide range of health care products are well within the range of traditional price elasticity estimates, including in particular our estimates for prescription drugs. We also find some evidence that suggests individuals trade off risk sharing through traditional insurance companies with risk sharing through the tax code. That is, as the tax price of health care decreases, individuals spend more on health care, but spend less on health insurance.

download in pdf format
   (207 K)

email paper

The NBER Bulletin on Aging and Health provides summaries of publications like this.  You can sign up to receive the NBER Bulletin on Aging and Health by email.

This paper is available as PDF (207 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w9855

Published: Smart, Michael and Mark Stabile. "Tax Credits, Insurance, And The Use Of Medical Care," Canadian Journal of Economics, 2005, v38(2,May), 345-365.

Users who downloaded this paper also downloaded these:
Gruber w15766 The Tax Exclusion for Employer-Sponsored Health Insurance
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us