The Effect of Tax–Exempt Out–of–Pocket Premiums on Health Plan Choice
نویسندگان
چکیده
741 National Tax Journal Vol. LIV, No. 4 Abstract Market–based health care reform proposals typically rely on 1) consumer choice among competing health plans, 2) premiums paid out–of–pocket for higher priced plans, and 3) a significant out– of–pocket premium–price elasticity of health plan choice. Section 125 of the Internal Revenue Code exempts employee out–of–pocket premiums from personal income taxes and FICA taxes. The predicted effect is attenuation of the out–of–pocket premium–price elasticity of health plan choice. Using 1994 data from a national sample of large public employers, we find that employees are sensitive to out–of–pocket premiums, but tax–exempt out–of–pocket premiums reduce substantially the price elasticity of health plan choice.
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