TAX INCENTIVES AND THE DECISION TO PURCHASE HEALTH-INSURANCE - EVIDENCE FROM THE SELF-EMPLOYED

The Tax Reform Act of 1986 introduced a new tax subsidy for health ins urance purchases by the self-employed. We analyze the changing pattern s of insurance demand before and after tax reform to generate new esti mates of how the after-tax price of insurance affects the discrete cho ice of whether to buy insurance. We employ both traditional regression models and difference-in-difference methods that compare changes in i nsurance coverage across groups around TRA86. The results from our mos t carefully controlled comparison suggest that a 1 percent increase in the cost of insurance coverage reduces the probability that a self-em ployed single person will be insured by 1.8 percentage points.