Cross-Subsidization in Employer-Based Health Insurance and the Effects of Tax Subsidy Reform

Svetlana Pashchenko and Ponpoje Porapakkarm

National Tax Journal, 2016, vol. 69, issue 3, 583-612

Abstract: Every individual buying employer-based health insurance receives a tax subsidy because premiums are excluded from taxable income. Since these premiums are independent of individual risk, high-risk individuals also receive implicit crosssubsidies from low-risk individuals. In this paper, we explore ways to reform the tax subsidy by taking this implicit cross-subsidization into account. Using a general equilibrium model, we find that targeting the tax subsidy can result in substantial savings. Specifically, the same level of risk-sharing can be achieved at one-third of current costs if the tax subsidy is targeted only toward low-risk individuals and premiums are age-adjusted.

Date: 2016
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Citations: View citations in EconPapers (5)

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Related works:
Working Paper: Cross-subsidization in employer-based health insurance and the effects of tax subsidy reform (2016)
Working Paper: Cross-subsidization in employer-based health insurance and the effects of tax subsidy reform (2013)
Working Paper: Cross-subsidization in employer-based health insurance and the effects of tax subsidy reform (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:ntj:journl:v:69:y:2016:i:3:p:583-612

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