SOURCES OF HEALTH-INSURANCE FOR THE SELF-EMPLOYED - DOES DIFFERENTIALTAXATION MAKE A DIFFERENCE

Health insurance obtained through employment has enabled many workers to take advantage of the favorable tax treatment of employer contribut ions to these benefits. However, the full deductibility of such employ er payments as a business expense and their exemption from income taxa tion are not available to self-employed owners of unincorporated busin esses. We identify the sources of health insurance for the self employ ed and examine how this disparity in tax treatment is associated with health insurance status. Analyses of data from the 1987 National Medic al Expenditure Survey reveal that the differential taxation of the uni ncorporated self employed is associated with lower rates of employment -related coverage for themselves and their workers.