The effect of tax-exempt out-of-pocket premiums on health plan choice

Published

Journal Article

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.

Duke Authors

Cited Authors

  • Dowd, B; Feldman, R; Maciejewski, M; Pauly, MV

Published Date

  • December 1, 2001

Published In

Volume / Issue

  • 54 / 4

Start / End Page

  • 741 - 753

International Standard Serial Number (ISSN)

  • 0028-0283

Citation Source

  • Scopus