Most Popular Books by JONATHAN GRUBER

This paper investigates the current tax subsidy to employer- provided health insurance, and presents new evidence on the economic effects of various tax reforms. It argues that previous analyses have overstated the tax subsidy to employer-provided insurance by neglecting the substantial and growing importance of after-tax employee payments for employer-provided insurance, as well as the tax subsidy for extreme medical expenses, which discourages insurance purchase. Even after considering these factors, however, the net tax subsidy to employer-provided insurance is substantial, with tax factors generating an average reduction of approximately thirty percent in the price of this insurance. Reducing the tax subsidy, either by capping the value of employer-provided health insurance that could be excluded from taxation, or eliminating the exclusion entirely, would have substantial effects on the level of employer- provided insurance and on tax revenues.

The ''induced demand'' model states that in the face of negative income shocks physicians may exploit their agency relationship with patients by providing excessive care in order to maintain their incomes. We test this model by exploiting an exogenous change in the financial environment facing obstetrician/gynecologists during the 1970s: declining fertility in the U.S. We argue that the 13.5% fall in fertility over the 1970-1982 period increased the income pressure on ob/gyns, and led them to substitute from normal childbirth towards a more highly reimbursed alternative, cesarean delivery. Using a nationally representative micro-data set for this period, we show that there is a strong correlation between within state declines in fertility and within state increases in cesarean utilization. This correlation is robust to consideration of a variety of alternative hypotheses, and appears to be symmetric with respect to periods of fertility decline and fertility increase.

The traditional normative analysis of government policy towards addictive bads is carried out in the context of a ''rational addiction'' model, whereby the only role for government is in correcting the external costs of consumption of such goods. But available evidence is at least as consistent, if not more so, with an alternative where individuals are ''time inconsistent'' about decisions such as smoking, having a higher discount rate between this period and the next than between future periods. We develop this time inconsistent model, and show that this alternative formulation delivers radically different implications for government policy towards smoking. Unlike the traditional model, our alternative implies that there is a role for government taxation of addictive bads even if there are no external costs; we estimate that the optimal tax on cigarettes is $1 or more higher than that implied by the traditional model. And we estimate that cigarette excise taxes are much less regressive than previously believed, and indeed for most parameter values are progressive, since lower income groups are much more price elastic and therefore benefit more from the commitment device provided by higher excise taxes.

Disability Insurance (DI), which provides income support to disabled workers, has been criticized for inducing a large fall in the labor force participation rate of older workers. We study the effects of one policy response designed to address this moral hazard problem: raising the rate at which DI claims are denied. Initial DI applications are decided at the state level, and, in response to a funding crisis for the DI program in the late 1970s, the states raised their rejection rates for first time applicants by 30% on average. The extent of this rise, however, varied substantially across states. We use this variation to estimate a significant reduction in labor force non-participation among older workers in response to denial rate rises. A 10% increase in denial rates led to a 2.7% fall in non- participation among 45-64 year old males; between 1/2 and 2/3 of this effect is a true reduction in labor force leaving, with the remainder accounted for by the return to work of denied applicants. We find some support for the notion that increases in denial rates effectively target their incentive effects to more able individuals; the fall in labor force non-participation was much stronger among more able workers, according to an anthropometric measure of disability.

A standard model of addictive process is Becker and Murphy''s rational addiction'' model, which has the key empirical prediction that the current consumption of addictive goods should respond to future prices, and the key normative prediction that the optimal government regulation of addictive goods should depend only on their interpersonal externalities. While a variety of previous studies have supported this empirical contention, we demonstrate that these results are very fragile. We propose a new empirical test for the case of cigarettes, using state excise tax increases that have been legislatively enacted but are not yet effective, and monthly data on consumption. We find strong evidence that consumption drops when there are announced future tax increases, providing more robust support for the key empirical prediction of the Becker and Murphy model. But we also propose a new formulation of this model that makes only one change, albeit a major one: the incorporation of the inconsistent preferences which are likely to provide a much better platform for understanding the smoking decision. We find that with these preferences the model continues to yield the predictions for forward-looking behavior that have been tested by others and by ourselves. But it has strikingly different normative implications, as with these preferences optimal government policy should depend as well on the internalities'' imposed by smokers on themselves. We estimate that the optimal tax per pack of cigarettes should be at least one dollar higher under our formulation than in the rational addiction case.

We consider the role of spousal labor supply as insurance against spells of unemployment. Standard theory suggests that women should work more when their husbands are out of work (the Added Worker Effect or AWE), but there has been little empirical support for this contention. We too find little evidence of an AWE over the 1984-1993 period. We suggest that one reason for the absence of the AWE may be that unemployment insurance (UI) is providing a state-contingent income stream that counteracts the negative income shock from the husband''s unemployment. We in fact find that increases in the generosity of UI lower labor supply among wives of unemployed husbands. Our results suggest that UI is crowding out a sizeable fraction of offsetting spousal earnings in response to unemployment spells, although even in the absence of a UI system the spousal response would only make up a small share of the associated reduction in family income. We also find evidence that families are making labor supply decisions in a life cycle context, since there are effects of UI on the labor supply of wives of employed husbands who face high unemployment risk. Yet, couples do not appear able to smooth the labor supply response to UI income flows equally over periods of employment and unemployment, suggesting the presence of liquidity constraints. Finally, wives in families with small children are more responsive to UI benefits in their labor supply decisions, which is consistent with the notion that they have a higher opportunity cost of market work.

Disability Insurance (DI) is a public program that provides income support to persons unable to continue work due to disability. The difficulty of defining disability, however, has raised the possibility that this program may be subsidizing the early retirement of workers who are not truly disabled. A critical input for assessing the optimal size of the DI program is therefore the elasticity of labor force participation with respect to benefits generosity. Unfortunately, this parameter has been difficult to estimate in the context of the U.S. DI program, since all workers face an identical benefits schedule. I surmount this problem by studying the experience of Canada, which operates two distinct DI programs, for Quebec and the rest of Canada. The latter program raised its benefits by 36% in January, 1987, while benefits were constant in Quebec, providing exogenous variation in benefits generosity across similar workers. I study this relative benefits increase using both simple `difference-in-difference'' estimators and more parameterized estimators that exploit the differential impact of this policy change across workers. I find that there was a sizeable labor supply response to the policy change; my central estimates imply an elasticity of labor force non-participation with respect to DI benefits of 0.25 to 0.32. Despite this large labor supply response, simulations suggest that there were welfare gains from this policy change under plausible assumptions about preference parameters.

Like most other developed nations, Canada has a large income security system for retirement that provides significant and widely varying disincentives to work at older ages. Empirical investigation of their effects has been hindered by lack of appropriate data. We provide an empirical analysis of the retirement incentives of the Canadian Income Security (IS) system using a new and comprehensive administrative data base. We find that the work disincentives inherent in the Canadian IS system have large and statistically significant impacts on retirement. This suggests that program reform can some play a role in responses to the fiscal crises these programs periodically experience. We also demonstrate the importance of controlling for lifetime earnings in retirement models. Specifications without these controls overestimate the effects of the IS system. Finally, our estimates vary in sensible ways across samples lending greater confidence to our estimates.

Government transfers to older persons in Canada are one of the largest and fastest growing components of the government budget. I provide an overview of the interaction between these transfer programs and retirement behavior. I begin by documenting historical trends in labor force participation and program receipt, and contemporaneous patterns of work and income receipt for the current cohort of older persons. I then present an overview of the structure of this system of Canadian transfer programs. Finally, I present results of a simulation model which measures the implicit tax/subsidy rate on work after age 55 through this system. I find that workers, there are modest taxes on work through age 64, that rise to fairly high levels thereafter. But these taxes are substantially lower for single workers, since they do not have wives eligible for means-tested transfers, and for workers with substantial other sources of income is not at all eligible for means-tested transfers.

The largest entitlement program in the United States today is the Social Security program (SS). We provide an overview of the interaction between the SS system and retirement behavior. We begin by documenting historical trends in labor force participation and program receipt, and contemporaneous patterns of work and income receipt for the current cohort of older persons. We then present an overview of the structure of the SS program in the U.S., and review existing evidence on the relationship between SS and retirement. Finally, we present results of a simulation model which measures the implicit tax/subsidy rate on work after age 55 through the SS system. We find that, for married workers, the system is roughly neutral with respect to work after age 62, but that it heavily penalizes work after age 65. But there are larger tax rates on single workers and on high earning workers.

A distinctive feature of the health insurance market in the U.S. is the restriction of group insurance availability to the workplace. This has a number of important implications for the functioning of the labor market, through mobility from job-to-job or in and out of the labor force, wage determination, and hiring decisions. This paper reviews the large literature that has emerged in recent years to assess the impact of health insurance on the labor market. I begin with an overview of the institutional details relevant to assessing the interaction of health insurance and the labor market. I then present a theoretical overview of the effects of health insurance on mobility and wage/employment determination. I critically review the empirical literature on these topics, focusing in particular on the methodological issues that have been raised, and highlighting the unanswered questions which can be the focus of future work in this area.

The single most important long run fiscal issue facing the developed world is the aging of its populations. In virtually every developed country, there will be a steep increase in the ratio of the elderly to the working age population over the first half of the 21st century. The purpose of our paper is to provide an international perspective on public policies directed towards the elderly, and to discuss the implications of these policies for both the elderly and for government budgets. We begin by briefly reviewing the panoply of public programs targeted to the elderly, and document wide variation among the otherwise similar OECD nations in government spending directed towards the elderly. We then review what this increased spending is buying the elderly by providing some evidence on the relationship between social insurance program incentives and labor supply, between public spending and average elderly incomes, and between public spending and elderly poverty rates. We provide some suggestive evidence that public spending on the elderly is doing little to raise their incomes on average, perhaps due to increased early retirement, but that it is significantly protecting them against poverty. We then ask what the demographic transition bodes for the future: if countries do not change their behavior, what is the likely path for their fiscal situations? We also show that, if the past is any guide, the burden of paying these high fiscal bills is likely to be paid through reduced spending elsewhere, particularly on programs for the non-elderly.

The Social Security earnings test, a version of which still applies to those ages 62-64, reduces immediate payments to beneficiaries whose labor income exceeds a given threshold. Although benefits are subsequently increased to compensate for any such reduction, the earnings test is typically perceived as a tax on working. As a result, it is considered by many to be an important disincentive to paid work for older Americans. Yet there is little evidence to suggest an economically significant effect of the earnings test on hours of work, and almost no research on the effect of the test on the decision to work at all. We investigate these issues using the significant changes in the structure of the earnings test over the past 25 years, using data over the past 25 years, using data over the 1973-1998 period from the March Supplement to the Current Population Survey (CPS), which provide large samples of observations on the elderly. Our analysis suggests two major conclusions. First, the earnings test exerts no robust influence on the labor supply decisions of men. Neither graphical analyses of breaks in labor supply trends, nor regression estimates that control for underlying trends in labor supply by age group, reveal any significant impact of changes in earnings test parameters on aggregate employment, hours of work, or earnings for men. For women, there is more suggestive evidence that the earnings test is affecting labor supply decisions. Second, loosening the earnings test appears to accelerate benefits receipt among the eligible population, lowering benefits levels, and heightening concerns about the standard of living of these elderly at very advanced ages. Our findings suggest some cause for caution before rushing to remove the earnings test at younger ages.

The continued interest in public insurance expansions as a means of covering the uninsured highlights the importance of estimates of quot;crowd-outquot;, or the extent to which such expansions reduce private insurance coverage. Ten years ago, Cutler and Gruber (1996) suggested that such crowd-out might be quite large, but much subsequent research has questioned this conclusion. We revisit this issue by using improved data and incorporating the research approaches that have led to varying estimates. We focus in particular on the public insurance expansions of the 1996-2002 period. Our results clearly show that crowd-out is significant; the central tendency in our results is a crowd-out rate of about 60%. This finding emerges most strongly when we consider family-level measures of public insurance eligibility. We also find that recent anti-crowd-out provisions in public expansions may have had the opposite effect, lowering take-up by the uninsured faster than they lower crowd-out of private insurance.

This paper reviews the formation and outcomes of health policy making during the Clinton Administration. We begin by reviewing the state of the health economy at the dawn of the Clinton era. We then review the promise and pitfalls of the Health Security Act, and its implications for all health policy that followed. We then turn to discussing accomplishments and failures in a variety of other areas of health policy: coverage expansions; insurance market regulation; Medicaid reforms; long term care; tobacco regulation; and other public health. We conclude that the dramatic failure of the HSA led to a very cautious and incremental approach to health policy making in subsequent years, but that viewed from the perspective of that that low point the health policy gains in the Clinton years were actually quite substantial

One popular explanation for this low rate of employee coverage is the presence of numerous state regulations which mandate that group health insurance plans must include certain benefits. By raising the minimum costs of providing any health insurance coverage, these mandated benefits make it impossible for firms which would have desired to offer minimal health insurance at a low cost to do so. I use data on insurance coverage among employees in small firms to investigate whether this problem is an important cause of employee non-insurance. I find that mandates have little effect on the rate of insurance coverage; this finding is robust to a variety of specifications of the regulations. I also find that this lack of an effect may be because mandates are not binding, since most firms appear to offer these benefits even in the absence of regulation.

There is considerable controversy over the use of private insurers to deliver public health insurance benefits. We investigate the efficiency consequences of patients enrolling in Medicare Advantage (MA), private managed care organizations that compete with the traditional fee-for-service Medicare program. We use exogenous shocks to MA enrollment arising from plan exits from New York counties in the early 2000s, and utilize unique data that links hospital inpatient utilization to Medicare enrollment records. We find that individuals who were forced out of MA plans due to plan exit saw very large increases in hospital utilization. These increases appear to arise through plans both limiting access to nearby hospitals and reducing elective admissions, yet they are not associated with any measurable reduction in hospital quality or patient mortality.

This paper reviews the issues around and impacts of the tax exclusion for employer-sponsored insurance. After reviewing the arguments for and against this policy, I present micro-simulation evidence on the federal revenue, insurance coverage, and distributional impacts of various reforms to the exclusion.

One of the major social policy issues facing the U.S. in the first decade of the 21st century is the large number of Americans lacking health insurance. This article surveys the major economic issues around covering the uninsured. I review the facts on insurance coverage and the nature of the uninsured; focus on explanations for why the U.S. has such a large, and growing, uninsured population; and discuss why we should care if individuals are uninsured. I then focus on policy options to address the problem of the uninsured, beginning with a discussion of the key issues and available evidence, and then turning to estimates from a micro-simulation model of the impact of alternative interventions to increase insurance coverage.

When first published, Gruber''s Public Finance and Public Policy brought a refreshingly contemporary approach. It was the first text written from the ground up to reflect current realities of public finance, enhancing its survey of traditional topics with an emphasis on empirical work and coverage of transfer programs and social insurance. The new edition, fully updated with the most recent data and research possible, includes new coverage of the Medicare drug benefit, changes in the tax code, Hurricane Katrina, and the ongoing debate over privatization.

The emergency department (ED) is a complex node of healthcare delivery that is facing market and regulatory pressure across developed economies to reduce wait times. In this paper we study how ED doctors respond to such incentives, by focussing on a landmark policy in England that imposed strong incentives to treat ED patients within four hours. Using bunching techniques, we estimate that the policy reduced affected patients'' wait times by 19 minutes, yet distorted a number of medical decisions. In response to the policy, doctors increased the intensity of ED treatment and admitted more patients for costly inpatient care. We also find a striking 14% reduction in mortality. To determine the mechanism behind these health improvements, we exploit heterogeneity in patient severity and hospital crowding, and find strongly suggestive evidence that it is the reduced wait times, rather than the additional admits, that saves lives. Overall we conclude that, despite distorting medical decisions, constraining ED doctors can induce cost-effective reductions in mortality.

A common prescription for reducing the number of uninsured is to increase the tax subsidization of health insurance in the U.S. Yet, we already provide over $100 billion per year in tax subsidies to health insurance. This paper provides an assessment of the past and potential impacts of taxation on health insurance coverage and costs. I begin by reviewing the central facts on health insurance and taxation. I then provide a framework for assessing the impacts of tax policies on health insurance coverage and costs, and I review the existing empirical evidence on the key behavioral parameters required to model these impacts. I conclude with the policy implications of these findings for tax policies to expand insurance coverage

Medicare Part D enrollees face a complicated decision problem: they must dynamically choose prescription drug consumption in each period given difficult-to-find prices and a non-linear budget set. We use Medicare Part D claims data from 2006-2009 to estimate a flexible model of consumption that accounts for non-linear budget sets, dynamic incentives due to myopia and uncertainty, and price salience. By using variation away from kink points, we are able to estimate structural models with a linear regression of consumption on coverage range prices. We then compare performance under several candidate models of expectations and coverage phase weighting. The estimates suggest small marginal price elasticities and substantial myopia; we also find evidence that salient plan characteristics impact consumption beyond their effect on out-of-pocket prices. A hyperbolic discounting model which allows for salient plan characteristics fits the data well, and outperforms both rational models and alternative behavioral models.

Recent years have seen enormous growth in limited network plans that restrict patient choice of provider, particularly through state exchanges under the ACA. Opposition to such plans is based on concerns that restrictions on provider choice will harm patient care. We explore this issue in the context of the Massachusetts GIC, the insurance plan for state employees, which recently introduced a major financial incentive to choose limited network plans for one group of enrollees and not another. We use a quasi-experimental analysis based on the universe of claims data over a three-year period for GIC enrollees. We find that enrollees are very price sensitive in their decision to enroll in limited network plans, with the state''s three month "premium holiday" for limited network plans leading 10% of eligible employees to switch to such plans. We find that those who switched spent considerably less on medical care; spending fell by almost 40% for the marginal complier. This reflects both reductions in quantity of services used and prices paid per service. But spending on primary care actually rose for switchers; the reduction in spending came entirely from spending on specialists and on hospital care, including emergency rooms. We find that distance traveled falls for primary care and rises for tertiary care, although there is no evidence of a decrease in the quality of hospitals used by patients. The basic results hold even for the sickest patients, suggesting that limited network plans are saving money by directing care towards primary care and away from downstream spending. We find such savings only for those whose primary care physicians are included in limited network plans, however, suggesting that networks that are particularly restrictive on primary care access may fare less well than those that impose only stronger downstream restrictions.

We examine how consumers respond to being effectively double insured under two systems: group health (GH) and workers'' compensation (WC). Many GH plans have substantial consumer cost-sharing burden, while WC coverage has no cost-sharing for medical services for work-related injuries. As a result, a consumer facing a large deductible under their group health plan will have a strong financial incentive to make a claim under WC instead. We use a unique data set of claims under both GH and WC to study how "case shifting" to WC responds to GH deductibles for the most common set of injuries that are covered under both types of insurance. We identify the impact of case shifting by using interactions of deductible levels and previous spending. We find that a typical claim is about 1.4 percentage points (5.3%) more likely to be filed as a WC claim when facing an average deductible (about $630) compared to a plan with no deductible, and that total WC costs in the U.S. are more than $1.2 billion higher as a result. At the same time, we find that consumers do not appear to be forward looking, focusing on the "spot price" rather than the full "end of year price" in deciding whether to claim under WC.