HOW WILL CHANGES IN HEALTH-INSURANCE TAX POLICY AND EMPLOYER HEALTH PLAN CONTRIBUTIONS AFFECT ACCESS TO HEALTH-CARE AND HEALTH-CARE COSTS

Objective.-To understand how changes in federal taxation of and employ er contributions to health insurance benefits affect the decisions of firms to offer insurance, the willingness of households to purchase di fferent health plans, and the resultant health expenditures. Design.-E conomic policy simulation. Setting.-Secondary data analysis. Participa nts.-A total of 18343 sampled families (representing 77 million total families throughout the United States) with a working household head f rom the 1988 Current Population Survey who were not covered by either Medicare, Medicaid, or CHAMPUS (Civilian Health and Medical Program of the Uniformed Services) insurance. Interventions-one intervention lim its the amounts of tax-free employer contributions to health insurance premiums to 80% of our estimate of the base plan in the market and as sumes that employer contributions will also be limited to this maximum . A second intervention eliminates the favorable tax treatment of empl oyer-paid premiums altogether and assumes that employees will pay the full price of insurance. Main Outcome Measures.-Change in the number o f working families offered employment-based insurance, change in insur ance plan choice, and change in medical spending. Results.-Capping the favorable tax treatment and employer contributions decreases the numb er of families offered employment-based insurance by approximately 910 00, increases the number of families selecting the least generous insu rance plan from 20% under the current situation to 33%, and reduces ov erall health spending by less than 2%. By eliminating the tax exemptio n altogether, the number of families offered employment-based insuranc e decreases by approximately half a million families, the number of fa milies selecting the least generous plan goes from 20% to 40%, and ove rall spending falls by about $16 billion. Conclusions.-Eliminating the tax subsidy and limiting employer-paid contributions to the low-cost plan substantially increases the number of low-income uninsured under a voluntary insurance system, decreases overall spending only modestly , but would raise tax revenues by $36 billion. These tax revenues coul d be used to assist low-income families to obtain insurance coverage.