Health Insurance and Tax Policy

Karsten Jeske and Sagiri Kitao

No 57, 2006 Meeting Papers from Society for Economic Dynamics

Abstract: The U.S. tax policy on health insurance favors only those offered group insurance through their employers, and is highly regressive since the subsidy takes the form of deductions from the progressive income tax system. The paper investigates alternatives to the current policy. We find that a complete removal of the subsidy results in a significant reduction in the insurance coverage and serious welfare deterioration. There is, however, room for improving welfare and raising the coverage, by eliminating regressiveness in the group insurance subsidy and by extending refundable credits to the private insurance market. Our work is the first in highlighting the importance of studying health policy in a general equilibrium framework with an endogenous demand for the health insurance. We use the Medical Expenditure Panel Survey (MEPS) to calibrate the process for income, health expenditure shocks and health insurance offer status through employers and succeed in producing the pattern of insurance demand as observed in the data, which serves as a solid benchmark for the policy experiments

Keywords: Income taxation; health insurance; heterogeneous agents (search for similar items in EconPapers)
JEL-codes: E62 H20 H31 (search for similar items in EconPapers)
Date: 2006
New Economics Papers: this item is included in nep-hea, nep-ias, nep-mac and nep-pbe
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Working Paper: Health insurance and tax policy (2005)
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