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and found that it could lead to a substantial reduction in the offer of employer-provided coverage

(by nearly 15.5 percent, equal to 24 million workers losing an offer of coverage). Their estimate

of the impact on the level of total spending for insurance was even larger. Marton (2004) also

found a large tax-price elasticity (-2.18) with respect to the quantity of insurance that employees

demanded, measuring quantity as the premium for insurance policies selected in the 1987

National Medical Expenditure Survey. He concluded that a reduction in the tax subsidy might

not cause employees to drop coverage, but instead cause them to select plans that offer less

coverage. Presumably, therefore, the impact on service utilization and expenditures also would

be smaller than others have estimated.22, 23

In contrast, Gruber and Washington (2005) found that employees’ take up of coverage

responded very little to differences in their tax price for coverage, but that tax subsidies did cause

employees to choose more costly insurance plans. They concluded that this response would

substantially raise the cost of increasing tax preferences in order to encourage greater take up.

Marquis et al. (2004) and Blumberg et al. (2002) reached similar conclusions about the likely

impact on greater tax subsidies on take up, although Blumberg et al. noted that tax subsidies

might be more effective if more narrowly targeted to low-income workers. Consistent with that

argument, Bernard and Selden (2003) concluded that low-income workers—as well as workers

with low health risks and those in small firms—respond more strongly than the average worker

to changes in the tax price of health insurance.

22 However, many factors may affect the price elasticity of demand for health insurance. For example, Feldman et al. (1997) suggested that voluntary efforts to increase the extent of insurance offered by small business could be successful, provided that low-priced policies are available with few restrictions and that the products are widely publicized and permanent. This conclusion supposes a much larger price elasticity of offer (especially for small firms) than other studies have found.

23 Regulatory efforts to promote access in the small-group market have done little to increase rates of insurance coverage. Monheit and Vistnes (1999) attributed this to the emphasis on altering insurer behavior instead of creating incentives to raise the value of health insurance for targeted firms and employees.


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