Tax subsidies for employer-sponsored health insurance: updated microsimulation estimates and sensitivity to alternative incidence assumptions

Health Serv Res. 2013 Apr;48(2 Pt 2):866-83. doi: 10.1111/1475-6773.12037. Epub 2013 Feb 10.

Abstract

Objective: To estimate 2012 tax expenditures for employer-sponsored insurance (ESI) in the United States and to explore the sensitivity of estimates to assumptions regarding the incidence of employer premium contributions.

Data sources: Nationally representative Medical Expenditure Panel Survey data from the 2005-2007 Household Component (MEPS-HC) and the 2009-2010 Insurance Component (MEPS IC).

Study design: We use MEPS HC workers to construct synthetic workforces for MEPS IC establishments, applying the workers' marginal tax rates to the establishments' insurance premiums to compute the tax subsidy, in aggregate and by establishment characteristics. Simulation enables us to examine the sensitivity of ESI tax subsidy estimates to a range of scenarios for the within-firm incidence of employer premium contributions when workers have heterogeneous health risks and make heterogeneous plan choices.

Principal findings: We simulate the total ESI tax subsidy for all active, civilian U.S. workers to be $257.4 billion in 2012. In the private sector, the subsidy disproportionately flows to workers in large establishments and establishments with predominantly high wage or full-time workforces. The estimates are remarkably robust to alternative incidence assumptions.

Conclusions: The aggregate value of the ESI tax subsidy and its distribution across firms can be reliably estimated using simplified incidence assumptions.

MeSH terms

  • Consumer Behavior / economics
  • Health Benefit Plans, Employee / economics*
  • Health Expenditures / statistics & numerical data
  • Humans
  • Income Tax / economics*
  • Insurance Coverage / economics*
  • Insurance Coverage / statistics & numerical data
  • Models, Econometric
  • Private Sector / economics
  • Salaries and Fringe Benefits / economics*
  • Salaries and Fringe Benefits / statistics & numerical data
  • Tax Exemption / economics*
  • United States