Income elasticity of insurance

Topics: Health insurance, United States Census Bureau, Supply and demand Pages: 62 (9955 words) Published: October 31, 2013
Subsidies and the Demand for
Individual Health Insurance in
California
´
M. Susan Marquis, Melinda Beeuwkes Buntin, Jose J. Escarce,
Kanika Kapur, and Jill M. Yegian
Objective. To estimate the effect of changes in premiums for individual insurance on decisions to purchase individual insurance and how this price response varies among subgroups of the population.

Data Source. Survey responses from the Current Population Survey (www.bls. census.gov/cps/cpsmain.htm), the Survey of Income and Program Participation (www.sipp.census.gov/sipp), the National Health Interview Survey (www.cdc.gov/ nchs/nhis.htm), and data about premiums and plans offered in the individual insurance market in California, 1996–2001.

Study Design. A logit model was used to estimate the decisions to purchase individual insurance by families without access to group insurance. This was modeled as a function of premiums, controlling for family characteristics and other characteristics of the market. A multinomial model was used to estimate the choice between group coverage, individual coverage, and remaining uninsured for workers offered group coverage as a function of premiums for individual insurance and out-of-pocket costs of group coverage. Principal Findings. The elasticity of demand for individual insurance by those without access to group insurance is about À .2 to À .4, as has been found in earlier studies. However, there are substantial differences in price responses among subgroups with low-income, young, and self-employed families showing the greatest response. Among workers offered group insurance, a decrease in individual premiums has very small effects on the choice to purchase individual coverage versus group coverage. Conclusions. Subsidy programs may make insurance more affordable for some families, but even sizeable subsidies are unlikely to solve the problem of the uninsured. We do not find evidence that subsidies to individual insurance will produce an unraveling of the employer-based health insurance system.

Key Words. Demand for health insurance, safety net, tax credits

More than 40 million Americans are uninsured. Policymakers and analysts widely agree that low incomes and high premiums are a primary cause. Thus, most proposals for reform include subsidies or public program expansions to reduce these barriers (e.g., Pauly 2001; Davis and Schoen 2003). The Bush administration proposed a new tax credit for those who do not have access 1547

1548

HSR: Health Services Research 39:5 (October 2004)

to employer-sponsored insurance, which received broad political support (Cunningham 2002b). Because the tax system subsidizes the purchase of employer group coverage, some analysts argue that providing tax subsidies to those who are not offered group plans is an equitable approach to reducing the problem of the uninsured (Kendall 2000; Butler 1999; Pauly and Hoff 2002). However, others believe that tax credits may lead to an unraveling of the employment-based system for health insurance that could lead to a reduction in overall coverage (Aaron 1999). This would occur if employees found they were better off purchasing in the individual market and dropped their employer plan. Employers’ decisions to offer insurance may also be affected if healthy members leaving the group leads to an increase in premiums or an inability to meet group size requirements.

Central to designing a tax credit is information about how a change in the price of individual insurance will affect decisions to purchase it. We need information about the price response and how it varies for different subgroups to determine the necessary size of the tax credit. We also need this information to determine how many workers covered by group plans might switch to the individual market to assess the effects of a tax credit on the employment-based system. Despite the considerable recent interest in tax subsidies and credits, there is relatively little empirical...

References: Aaron, H. 1999. ‘‘Assessing Employment-based Insurance and Its Alternatives.’’ Presented at Using Tax Policy to Reduce the Number of Uninsured, Washington,
DC, December 17.
Blumberg, L., and L. M. Nichols. 2001. ‘‘Why Are So Many Americans Uninsured? A
Conceptual Framework, Summary of Evidence, and Delineation of the Gaps in
Blumberg, L., L. M. Nichols, and J. Banthin. 2001. ‘‘Worker Decisions to Purchase
Health Insurance.’’ International Journal of Health Care Finance and Economics 1
Blumberg, L., L. M. Nichols, Y. Shen, and M. Buettgens. 2002. Simulating Health
Insurance Tax Credits Using the Health Insurance Reform Simulation Model
Buntin, M. B., J. J. Escarce, K. Kapur, J. M. Yegian, and M. S. Marguis. 2003. ‘‘Trends
and Variability in Individual Insurance Products in California’’ [accessed on
December 3, 2003]. Available at http://www.healthaffairs.org/cgi/reprint/
hlthaff.w3.449v1.dpf
Butler, S. 1999. ‘‘Transcending Employer-based Health Insurance.’’ Paper presented
at conference Using Tax Policy to Reduce the Number of Uninsured,
Chernew, M., K. Frick, and C. McLaughlin. 1997. ‘‘The Demand for Health Insurance
Coverage by Low-Income Workers: Can Reduced Premiums Achieve Full
Chollet, D. J., A. M. Kirk, and R. D. Ermann. 1997. Mapping Insurance Markets: The Group
and Individual Insurance Markets in 26 States
Cunningham, R. 2002a. ‘‘Declining Employer-Sponsored Coverage: The Role of
Public Programs and Implications for Access to Care.’’ Medical Care Research and
Cunningham, R. 2002b. ‘‘Joint Custody: Bipartisan Interest Expands Scope of
Tax-Credit Proposals’’ [accessed on December 3, 2003]
Davis, K., and C. Schoen. 2003. ‘‘Creating Consensus on Coverage Choices.’’ [accessed on December 3, 2003]. Available at http://www.healthaffairs.org/cgi/
reprint/hlthaff.w3.199v1.dpf
Feenberg, D., and E. Coutts. 1993. ‘‘An Introduction to the TAXSIM Model.’’ Journal of
Policy Analysis and Management 12 (1): 189–94.
Gruber, J. 2000. ‘‘Tax Subsidies for Health Insurance: Evaluating the Costs and Benefits.’’ Working paper no. 7553. Cambridge, MA: National Bureau of Economic
Research.
Gruber, J., and J. Poterba. 1994. ‘‘Tax Incentives and the Decision to Purchase Health
Insurance, Evidence from the Self Employed.’’ Quarterly Journal of Economics 109
Hadley, J., and J. Reschovsky. 2002. ‘‘Health and the Cost of Nongroup Insurance.’’
Paper presented at the conference on Individual Health Insurance: Fact, Opinion and Policy, sponsored by the Center for Studying Health System Change,
Kendall, D. B. 2000. A Health Insurance Tax Credit: Backgrounder. Washington, DC:
Progressive Policy Institute.
Long, S. H., and M. S. Marquis. 2002. ‘‘Participation in a Public Insurance Program:
Subsidies, Crowd-Out and Adverse Selection.’’ Inquiry 39 (3): 243–57.
Marquis, M. S., and J. L. Buchanan. 1992. ‘‘Subsidies and National Health Care Reform: The Effect on Workers Demand for Health Insurance Coverage.’’ Health
Benefits and the Workforce
1570
HSR: Health Services Research 39:5 (October 2004)
Marquis, M. S., and S. H. Long. 1995. ‘‘Worker Demand for Health Insurance in the
Non-Group Market.’’ Journal of Health Economics 14 (1): 47–63.
McClellan, M., and K. Baicker. 2002. ‘‘Reducing Uninsurance through the Nongroup
Market: Health Insurance Credits and Purchasing Groups’’ [accessed on December 3, 2003]
Patel, V. 2002. ‘‘Raising Awareness of Consumers’ Options in the Individual Health
Insurance Market’’ [accessed on December 3, 2003]
Pauly, M., and B. Herring. 2001. ‘‘Expanding Coverage via Tax Credits: Trade-offs
and Outcomes.’’ Health Affairs 20 (1): 9–26.
Pauly, M., and J. Hoff. 2002. Responsible Tax Credits for Health Insurance. Washington,
DC: AEI Press.
Pauly, M. V. 2001. ‘‘An Adaptive Credit Plan for Covering the Uninsured.’’ Covering
America
Pauly, M. V., and L. M. Nichols. 2002. ‘‘The Nongroup Health Insurance Market:
Short on Facts, Long on Opinions and Policy Disputes’’ [accessed on December
3, 2003]. Available at: http://www.healthaffairs.org/cgi/reprint/hlthaff.w2.
Polzer, K., and J. Gruber. 2003. Assessing the Impact of State Tax Credits for Health Insurance
Coverage
Rask, K. N., and K. J. Rask. 2000. ‘‘Public Insurance Substituting for Private Insurance:
New Evidence Regarding Public Hospitals, Uncompensated Care Funds, and
Remler, D., and S. Glied. 2003. ‘‘What Other Programs Can Teach Us: Increasing
Participation in Health Insurance Programs.’’ American Journal of Public Health
Young, D., and T. Wildsmith. 2002. ‘‘Expanding Coverage: Maintain a Role for
the Individual Market’’ [accessed on December 3, 2003]
Continue Reading

Please join StudyMode to read the full document

You May Also Find These Documents Helpful

  • insurance Essay
  • Insurance Essay
  • Insurance Essay
  • Importance of income elasticity to firms Essay
  • Income Elasticity Essay
  • Insurance Essay
  • role of insurance Essay
  • insurance assignment Essay

Become a StudyMode Member

Sign Up - It's Free
Les Garçons sauvages | DiskCatalogMaker 6.8.1 | Turfmaster Gartenanhänger Geräteanhänger a. galvanisiertem Stahl Nutzlast 450 kg