The impact of the personal income tax on household health insurance coverage

This dissertation analyzes the effect of preferential tax treatment on household health insurance coverage in this country. Both employer-provided and individually purchased coverage are analyzed, with allowance for the possibility that a given tax filing unit may possess both types of coverage, and allowing for employer-provided coverage to be contributory in nature.; To control for the constrained nature of employer-provided health insurance coverage, the dual approach to the rationing problem is utilized. Household utility is specified as a function of total health insurance coverage, which consists of individually-fixed quantities of employer-provided coverage and freely chosen individually purchased coverage, and a vector of other freely chosen goods. With employer-provided health insurance treated as a constrained good, a change in its effective price to the household produces only an income effect on the constrained demand for individually purchased coverage; with this effect being negative if the two types of health insurance are both normal goods and Hicksian substitutes, and ambiguous in the case of Hicksian complements. The effect of a change in the level of employer-provided coverage on the constrained demand for individually purchased coverage also depends on whether a household is forced to overconsume or underconsume employer-provided coverage. Only in the case of forced overconsumption, with the two types of insurance being Hicksian substitutes is it possible to sign this comparative static effect. In that case this effect is negative.; The National Medical Care Expenditure Survey (NMCES) of 1977, augmented with tax data from Statistics on Income for that year, serves as the data set for the empirical work contained in the dissertation. Utilizing a decisive employee approach, so as to account for the local public good nature of employer-provided coverage, it is found that such coverage is considerably more responsive to changes in price and income than indicated on the basis of past analyses using all individual characteristics as determinants of the level of such coverage. The empirical analysis of individually purchased coverage finds that the major impact of preferential tax treatment of health insurance is on the probability of individually purchasing such coverage, rather than on the conditional level of such coverage purchased.