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Health Insurance and Tax Policy

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  • Karsten Jeske
  • Sagiri Kitao

    ()
    (Economics New York University)

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

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Paper provided by Society for Economic Dynamics in its series 2006 Meeting Papers with number 57.

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Date of creation: 03 Dec 2006
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Handle: RePEc:red:sed006:57

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Keywords: Income taxation; health insurance; heterogeneous agents;

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  1. Satyajit Chatterjee & Dean Corbae & Makoto Nakajima & Jose-Victor Rios-Rull, 2007. "A quantitative theory of unsecured consumer credit with risk of default," Working Papers 07-16, Federal Reserve Bank of Philadelphia.
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Cited by:
  1. Juergen Jung & Chung Tran, 2010. "The Macroeconomics of Health Savings Accounts," Working Papers 2010-12, Towson University, Department of Economics, revised May 2011.

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