Health Insurance and Tax Policy

29 Pages Posted: 28 Sep 2005

See all articles by Karsten Jeske

Karsten Jeske

Mellon Capital Management - Research

Sagiri Kitao

City University of New York, CUNY Hunter College - Department of Economics

Date Written: August 2005

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.

Keywords: health insurance, risk sharing, tax policy

JEL Classification: E21, E62, I10

Suggested Citation

Jeske, Karsten and Kitao, Sagiri, Health Insurance and Tax Policy (August 2005). Available at SSRN: https://ssrn.com/abstract=805105 or http://dx.doi.org/10.2139/ssrn.805105

Karsten Jeske (Contact Author)

Mellon Capital Management - Research ( email )

595 Market Street
Suite 3000
San Francisco, CA 94105
United States
415-546-6056 (Phone)

Sagiri Kitao

City University of New York, CUNY Hunter College - Department of Economics ( email )

695 Park Avenue
New York, NY 10021
United States

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