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Health insurance and tax policy

Author

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  • Karsten Jeske
  • Sagiri Kitao

Abstract

The U.S. tax policy on health insurance favors only those offered a group insurance through their employers. This policy is highly regressive since the subsidy takes the form of deductions from the progressive tax system. The paper investigates alternatives to the current policy. We find that the complete removal of the subsidy results in a significant reduction in the insurance coverage and serious welfare deterioration. However, eliminating regressiveness in the group insurance subsidy and extending benefits to the private insurance market improve welfare and raise the coverage. 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 and succeed in producing the pattern of insurance demand as observed in the data, which serve as a solid benchmark for the policy experiments.

Suggested Citation

  • Karsten Jeske & Sagiri Kitao, 2005. "Health insurance and tax policy," FRB Atlanta Working Paper 2005-14, Federal Reserve Bank of Atlanta.
    • Handle: RePEc:fip:fedawp:2005-14
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    Cited by:

    1. Juergen Jung & Chung Tran, 2008. "The Macroeconomics of Health Savings Accounts," CAEPR Working Papers 2007-023, Center for Applied Economics and Policy Research, Department of Economics, Indiana University Bloomington.

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    More about this item

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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