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Health Insurance and Tax Policy

  • Karsten Jeske
  • Sagiri Kitao


    (Economics New York University)

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
Date of revision:
Handle: RePEc:red:sed006:57
Contact details of provider: Postal: Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA
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  1. Hubbard, R Glenn & Skinner, Jonathan & Zeldes, Stephen P, 1995. "Precautionary Saving and Social Insurance," Journal of Political Economy, University of Chicago Press, vol. 103(2), pages 360-99, April.
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  17. Huggett, Mark, 1993. "The risk-free rate in heterogeneous-agent incomplete-insurance economies," Journal of Economic Dynamics and Control, Elsevier, vol. 17(5-6), pages 953-969.
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