Tax Policy for Health Insurance
AbstractDespite a $140 billion existing tax break for employer-provided health insurance, tax policy remains the tool of choice for many policy-makers in addressing the problem of the uninsured. In this paper, I use a microsimulation model to estimate the impact of various tax interventions to cover the uninsured, relative to an expansion of public insurance designed to accomplish the same goals. I contrast the efficiency of these policies along several dimensions, most notably the dollars of public spending per dollar of insurance value provided. I find that every tax policy is much less efficient than public insurance expansions: while public insurance costs the government only between $1.17 and $1.33 per dollar of insurance value provided, tax policies cost the government between $2.36 and $12.98 per dollar of insurance value provided. I also find that targeting is crucial for efficient tax policy; policies tightly targeted to the lowest income earners have a much higher efficiency than those available higher in the income distribution. Within tax policies, tax credits aimed at employers are the most efficient, and tax credits aimed at employees are the least efficient, because the single greatest determinant of insurance coverage is being offered insurance by your employer, and because most employees who are offered already take up that insurance. Tax credits targeted at non-group coverage are fairly similar to employer tax credits at low levels, but much less efficient at higher levels.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10977.
Date of creation: Dec 2004
Date of revision:
Publication status: published as Jonathan Gruber. "Tax Policy for Health Insurance ," in James M. Poterba, editor, "Tax Policy and the Economy, Volume 19" MIT Press (2005)
Note: HE PE
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Other versions of this item:
- H2 - Public Economics - - Taxation, Subsidies, and Revenue
- I1 - Health, Education, and Welfare - - Health
This paper has been announced in the following NEP Reports:
- NEP-ACC-2004-12-20 (Accounting & Auditing)
- NEP-ALL-2004-12-20 (All new papers)
- NEP-CMP-2004-12-20 (Computational Economics)
- NEP-HEA-2004-12-20 (Health Economics)
- NEP-IAS-2004-12-20 (Insurance Economics)
- NEP-PBE-2004-12-20 (Public Economics)
- NEP-PUB-2004-12-20 (Public Finance)
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.:
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