Access to Care

Bigger tax breaks for insurance premiums expands private coverage for self-employed workers and their spouses

The high cost of health care has long prevented many self-employed workers, who typically must purchase expensive nongroup or small-group coverage, from buying health insurance. Self-employed workers could deduct only 30 percent of health insurance premiums from their taxes in 1996, but were allowed to deduct 100 percent in 2003. This bigger tax subsidy expanded private coverage by 1.1 to 1.7 million self-employed workers and their spouses, according to a new study. As in any subsidy-based effort to expand private coverage, much of the cost arises from transfers to families that would have held coverage even in the absence of a subsidy increase. Nevertheless, the cost per newly insured person was less than $2,300.

This cost is lower than that of more broadly targeted tax subsidies, notes Thomas M. Selden, Ph.D., of the Agency for Healthcare Research and Quality (AHRQ). He examined data from AHRQ's 1996-2004 Medical Expenditure Panel Survey to examine the impact of the larger tax subsidy on private coverage among self-employed workers and their families. His analysis finds that the increased tax subsidy was associated with substantial increases in private coverage among self-employed workers and their spouses.

Private coverage for children in self-employed families appeared to be less sensitive to subsidies (consistent with parents being more risk-averse regarding children's coverage). There was some evidence suggesting that tax subsidies may have "crowded out" public coverage, especially among children, although the magnitude and significance of this effect varied across models.

See "The impact of increased tax subsidies on the insurance coverage of self-employed families: Evidence from the 1996-2004 Medical Expenditure Panel Survey," by Dr. Selden, in the Winter 2009 Journal of Human Resources 44(1), pp. 115-139. Reprints (AHRQ Publication No. 09-R023) are available from the AHRQ Publications Clearinghouse.

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