The Impact of Increased Tax Subsidies on the Insurance Coverage of Self-Employed Families: Evidence from the 1996-2004 Medical Expenditure Panel Survey

The share of health insurance premiums that self-employed workers can deduct when computing federal income taxes rose from 30 percent in 1996 to 100 percent in 2003. Data from the 1996–2004 Medical Expenditure Panel Survey are used to show that the increased tax subsidy was associated with substantial increases in private coverage among self-employed workers and their spouses. Estimated effects on public coverage and the coverage of children were smaller in magnitude and less precisely estimated. Simulation results show that much of the post-1996 subsidy increase represented an inframarginal transfer to persons who would have had held private insurance anyway. Nevertheless, increased subsidization expanded private coverage by 1.1 to 1.7 million persons, at a cost per newly insured person less than $2, 300 in all simulations—a cost below that found in simulations of more broadly based subsidies.