Number: 98-515
Title: Tax Treatment of Health Insurance Expenditures by the Self-Employed: Current Law and Selected Economic Effects
Authors: Gary Guenther, Economics Division 
Abstract: The federal tax code has offered a deduction for the health insurance expenditures of the self-employed since 1987. In 2001, self-employed individuals may deduct from their gross income 60% of the cost of health insurance for themselves and their immediate families, and the share is scheduled to rise to 70% in 2002 and 100% in 2003 and thereafter. The deduction encourages the self-employed to purchase non-group health insurance by lowering its after-tax cost. While there is evidence that it has boosted health insurance coverage among the self-employed since it went into effect, the deduction in its present form raises some economic policy issues. Specifically, some are concerned that it is more valuable to high-income than low-income households, encourages the consumption of inefficient amounts of health care, and could worsen the problem of adverse selection in health insurance markets.
Pages: 6
Date: January 23, 2001