U.S. tax policy and health insurance demand: Can a regressive policy improve welfare?

Karsten Jeske and Sagiri Kitao ()

Journal of Monetary Economics, 2009, vol. 56, issue 2, pages 210-221

Abstract: The U.S. tax policy on health insurance is regressive because it subsidizes only those offered group insurance through their employers, who also tend to have a relatively high income. Moreover, the subsidy takes the form of deductions from the progressive income tax system giving high income earners a larger subsidy. To understand the effect of the policy, we construct a dynamic general equilibrium model with heterogenous agents and an endogenous demand for health insurance. A complete removal of the subsidy may lead to a partial collapse of the group insurance market, reduce the insurance coverage and deteriorate welfare. There is, however, room for improving the coverage and welfare by extending a refundable credit to the individual insurance market.

Keywords: Health; insurance; Risk-sharing; Tax; policy (search for similar items in EconPapers)
Date: 2009
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Working Paper: U.S. tax policy and health insurance demand: can a regressive policy improve welfare? (2007)
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Persistent link: http://EconPapers.repec.org/RePEc:eee:moneco:v:56:y:2009:i:2:p:210-221

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