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

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Author Info
Jeske, Karsten
Kitao, Sagiri

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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.

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File URL: http://www.sciencedirect.com/science/article/B6VBW-4V74VM4-2/2/7c20395595d545b4fc0ad9e285f70c07
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Publisher Info
Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 56 (2009)
Issue (Month): 2 (March)
Pages: 210-221
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Handle: RePEc:eee:moneco:v:56:y:2009:i:2:p:210-221

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Web page: http://www.elsevier.com/locate/inca/505566

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Keywords: Health insurance Risk-sharing Tax policy;

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References listed on IDEAS
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Timothy J. Halliday & Hui He & Hao Zhang, 2009. "Health Investment over the Life-Cycle," Working Papers 200910, University of Hawaii at Manoa, Department of Economics. [Downloadable!]
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