اثر یارانه های مالیاتی بر بیمه سلامتی تکمیلی کارفرما: شواهدی از کانادا

This paper presents new evidence of the effect of the tax subsidy to employer-provided health insurance on coverage by such insurance. I study the effects of a 1993 tax change that reduced the tax subsidy to employer-provided supplementary health insurance in Quebec by almost 60%. Using a differences-in-differences methodology in which changes in Quebec are compared to changes in other provinces not affected by the tax change, I find that this tax change was associated with a decrease of about one-fifth in coverage by employer-provided supplementary health insurance in Quebec. This corresponds to an elasticity of employer coverage with respect to the tax price of about −0.5. Non-group supplementary health insurance coverage rose slightly in Quebec relative to other provinces in response to the reduction in the tax subsidy to employer-provided (group) coverage. But the increase in the non-group market offset only 10–15% of the decrease in coverage through an employer. The decrease in coverage through an employer was especially pronounced in small firms, where the tax subsidy appears much more critical to the provision of supplementary health insurance than it does in larger firms.

In both the United States and Canada, private health insurance is primarily obtained as an employee benefit. In the United States, almost 90% of the non-elderly with private health insurance are covered through their employer (Employee Benefits Research Institute, 1995). In Canada, almost all private health insurance – which primarily covers out of hospital prescription drugs since these are not covered by the public health insurance system – is provided through an employer.1 There may be efficiency reasons for the prevalence of such insurance through the workplace. Economies of scale in the administration and underwriting of policies make it cheaper for firms (particularly large ones) to provide benefits. In addition, pooling workers of different health risks can reduce the scope for adverse selection that is present in the market for non-group health insurance. The predominance of employer provision may also be a function of the tax system. Both Canada and the United States subsidize employer provision of health benefits by excluding employer contributions to these benefits from the employee’s taxable income. These tax subsidies constitute major expenditures for their respective governments. In the United States, the tax exclusion of employer-provided health insurance is the largest single tax expenditure, costing the federal government $US 72.5 billion in foregone federal income tax revenue in fiscal year 1999 (Office of Management and Budget, 1999). In Canada, the exclusion cost the federal government approximately $CA 1.6 billion in lost federal tax revenues in 1998. (Government of Canada, 1998).2 There is little empirical evidence with which to estimate of the expected effects of a reduction in this tax subsidy on the extent of coverage through the workplace. Most of the existing literature is based on comparing health insurance coverage across workers with different marginal tax rates and hence different tax subsidy rates. As is discussed in greater detail below, such analyses are unlikely to estimate consistently the effect of the tax subsidy on coverage by employer-provided health insurance. However, a recent major reform to the tax subsidy in Canada provides an opportunity to consistently estimate the effect of the tax subsidy on coverage by employer-provided supplementary health insurance. In May 1993, the Quebec government removed the exclusion of employer contributions to health and dental benefits from an employee’s provincial taxable income. The other provinces and the federal government kept the tax exclusion in place. The reform cut the total tax subsidy to employer-provided supplementary health insurance in Quebec by almost 60%. This change in the subsidy is substantially larger than changes studied in previous work. It therefore provides a unique opportunity to consider the effects of large-scale changes in the tax subsidy to employer provided supplementary health insurance. Although universal public health insurance in Canada makes private health insurance coverage less critical in Canada than in the United States, substantial gaps in the Canadian public system have resulted in widespread use of supplementary private health insurance. In particular, the Canadian public health insurance system, like the US Medicare program for those over 65, does not cover out of hospital prescription drugs. These are a rapidly rising component of health costs in Canada, amounting to 15% of total health expenditures in 1993 (World Health Organization, 1996). As a result of this and other gaps in the public health insurance system, about 80% of the non-elderly, non-indigent adult population in Canada has supplementary health coverage through a private plan (Mercer, 1995). The effects of tax subsidies to employer-provided supplementary health insurance in Canada have been analyzed previously by Stabile (1999). Stabile explores the effects of marginal tax rates on the propensity to hold employer-provided supplementary health insurance by using variation in marginal tax rates across individuals at a point in time. This paper builds on Stabile’s work by exploiting a richer data set that allows us to look across time over the period of the Quebec reform as well as across individuals in estimating the effects of a change in the tax subsidy to employer-provided supplementary health insurance. The results of this paper indicate that the tax subsidy to employer-provided supplementary health insurance has a large effect both on employer-provided supplementary health insurance coverage and on total insurance coverage. The reduction of the tax subsidy in Quebec coincided with a 13–14 percentage point drop in workplace coverage. This drop constitutes an 18–19% decrease in workplace coverage and corresponds to an elasticity of employer coverage with respect to the tax price of −0.46 to −0.49. This estimate is robust to alternative specifications. Changes in coverage reflect the joint outcome of changes in employer offering and changes in employee take-up. For reasons discussed below, I believe that the observed response is more likely to be occurring on the offering margin than the take-up margin, although I cannot distinguish empirically between these two effects. Evidence from the non-group market suggests that non-group supplementary health insurance coverage rose slightly in Quebec relative to other provinces in response to the reduction in the tax subsidy to employer-provided (group) coverage. However, the increase in coverage in the non-group market offset only 10–15% of the decrease in coverage through an employer. The reduction in the tax subsidy to employer-provided supplementary health insurance is therefore associated with a substantial net decline in total private supplementary health insurance coverage in Quebec. The evidence presented here also indicates a substantial dispersion across firms of different sizes in the sensitivity of workplace coverage to the tax subsidy. The reform is associated with a 19–26 percentage point reduction in coverage in firms with less than 20 employees, compared to only a 6–7 percentage point reduction in firms with more than 500 employees. These results suggest that the tax subsidy is critical to employer provision of supplementary health insurance in small firms, where gains from pooling and reduced administrative costs are likely to be small if present at all. The tax subsidy appears less critical in larger firms where these other factors may play a larger role in the creation of workplace-based insurance pools. The rest of the paper proceeds as follows. In Section 2, I provide background on the Canadian public and private health insurance systems and on the tax treatment of employer-provided supplementary health insurance. Section 3 describes the data and estimation strategy. The results of the tax reform are presented and discussed in section 4. I first present estimates of the effect of the Quebec reform on coverage by employer-provided supplementary health insurance. I compare this estimate to previous estimates of the effect of the tax subsidy on workplace coverage. I then extend the analysis to consider the effect of the Quebec reform on different types of workers and on coverage by employer-provided dental benefits. I also estimate the effects of a smaller tax reform that occurred at the same time in Ontario. Finally, I analyze the effects of the Quebec reform on the non-group market for supplementary health insurance in Quebec. Section 5 examines the relative role of the tax subsidy – compared to other advantages of the workplace as a source of health insurance provision – in making the workplace the predominant source of such insurance. By comparing the effect of the Quebec reform on workers in firms of different sizes, I conclude that the tax subsidy plays a much larger role in the decision to provide insurance in small firms than in larger ones. Section 6 presents several tests of the underlying assumption in the paper that the observed changes in supplementary health insurance coverage in Quebec are due to the Quebec tax reform rather than to other factors. Section 7 concludes.

This paper has presented new evidence of the effect of the tax subsidy to employer-provided supplementary health insurance on coverage by such insurance. The 1993 removal of the Quebec provincial tax subsidy to employer-provided supplementary health insurance, while leaving in place the federal tax subsidy and the payroll tax subsidy, reduced the total tax subsidy to employer-provided supplementary health insurance in Quebec by almost 60%. I estimate that this reduction in the tax subsidy resulted in a 13–14 percentage point decrease in supplementary health insurance coverage through the workplace. This represents a decline in workplace coverage of about one fifth, and corresponds to an elasticity of coverage by employer-provided supplementary health insurance with respect to the tax price of −0.46 to −0.49. This elasticity lies well within the range of previously estimated elasticities in the United States of employer offering of health insurance with respect to the tax subsidy. I find that decreases in coverage through the workplace associated with the tax reform are only slightly offset by increases in coverage in the non-group market. I estimate that the increase in coverage in the non-group market in Quebec relative to the control provinces was only about 10–15% of the decrease in workplace coverage. The evidence also suggests that a tax subsidy to employer-provided supplementary health insurance plays a large role in explaining the provision of such insurance in small firms, but a considerably smaller role in large firms. This result is consistent with the notion that large firms offer other advantages as a source of insurance – such as risk pooling and economies of scale in administration – that would make them attractive venues for insurance even absent the subsidy. The appeal to offering supplementary health insurance in small firms, however, where gains from risk pooling and economies of scale are considerably lower, appears to be much more sensitive to the tax subsidy. Several related questions were not explored in this paper due to limitations of the data. First, it would be interesting to study the effect of the tax subsidy on other margins of coverage besides the binary measure of whether the individual’s employer provides coverage. The response to a change in the tax subsidy may operate partly through changes in intensive margins of coverage, such as decreases in maximum claims, reductions in services covered, and increases in employee co-payments and deductibles. To the extent that such changes occurred, the examination solely of the extensive coverage margin undertaken here underestimates the decrease in insurance coverage due to the tax reform. Second, the reduction of the tax subsidy to employer-provided health insurance reduces the rationale for employer (as opposed to employee) contributions to health insurance premia. Increased employee contributions should affect margins such as take-up conditional on offering and therefore, in turn, the scope for adverse selection in a workplace pool. Finally, it would also be interesting to explore the consequences of the reduction in the tax subsidy for utilization of privately and publicly insured health services, and for health outcomes.