Changes in the demand for private medical insurance following a shift in tax incentives

Marisol Rodríguez () and Alexandrina Stoyanova ()
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Marisol Rodríguez: Grup de Recerca en Economia del Benestar (CREB, Departament de Política Econòmica i Estructura Econòmica Mundial, Universitat de Barcelona
Alexandrina Stoyanova: Grup de Recerca en Economia del Benestar (CREB), Departament d'Economia i Empresa, Universitat de Barcelona

No CREAP2006-12, Working Papers from Xarxa de Referència en Economia Aplicada (XREAP)

Abstract: The 1998 Spanish reform of the Personal Income Tax eliminated the 15% deduction for private medical expenditures including payments on private health insurance (PHI) policies. To avoid an undesirable increase in the demand for publicly funded health care, tax incentives to buy PHI were not completely removed but basically shifted from individual to group employer-paid policies. In a unique fiscal experiment, at the same time that the tax relief for individually purchased policies was abolished, the government provided for tax allowances on policies taken out through employment. Using a bivariate probit model on data from National Health Surveys, we estimate the impact of said reform on the demand for PHI and the changes occurred within it. Our findings suggest that the total probability of buying PHI was not significantly affected. Indeed, the fall in the demand for individual policies (by 10% between 1997 and 2001) was offset by an increase in the demand for group employer-paid ones, so that the overall size of the market remained virtually unchanged. We also briefly discuss the welfare effects on the state budget, the industry and society at large.

Keywords: Private health insurance; tax reform; Spain. (search for similar items in EconPapers)
JEL-codes: H31 I10 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2006-12, Revised 2006-12
New Economics Papers: this item is included in nep-hea, nep-ias and nep-pbe
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Citations: View citations in EconPapers (3)

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http://www.xreap.cat/RePEc/xrp/pdf/CREAP2006-12.pdf First version, 2006 (application/pdf)
http://www.xreap.cat/RePEc/xrp/pdf/CREAP2006-12.pdf Revised version, 2006 (application/pdf)

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