Would the provision of tax credits for use in the nongroup market affect the group market?
Thus far we have largely discussed and compared individual and small-group markets as they currently are, but it is likely that institution of a moderately generous and well-funded program of tax credits would transform both markets. What the transformation would be depends on the form of, eligibility for, and funding of the tax credit plan; a wide variety of options (and associated tradeoffs) are possible, too many to discuss here.39 We therefore limit our analysis to two commonly described transformations: (1) the average generosity of nongroup coverage, and (2) effects of nongroup tax credits on the extent and functioning of group insurance. Generosity of coverage. Group insurance is subsidized with an open-ended tax exclusion, while nongroup insurance coverage usually is not. Research clearly shows that this subsidy increases both the average generosity of group coverage and the likelihood of using this method of providing coverage. Group coverage is also more generous than nongrou
