U.S. tax policy and health insurance demand: Can a regressive policy improve welfare? |
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Authors: | Karsten Jeske |
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Institution: | a Mellon Capital Management, Investment Research, 50 Fremont Street, Suite 3900, San Francisco, CA 94105, USA b Marshall School of Business, University of Southern California, 3670 Trousdale Parkway, Los Angeles, CA 90019, USA |
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Abstract: | The U.S. tax policy on health insurance is regressive because it subsidizes only those offered group insurance through their employers, who also tend to have a relatively high income. Moreover, the subsidy takes the form of deductions from the progressive income tax system giving high income earners a larger subsidy. To understand the effect of the policy, we construct a dynamic general equilibrium model with heterogenous agents and an endogenous demand for health insurance. A complete removal of the subsidy may lead to a partial collapse of the group insurance market, reduce the insurance coverage and deteriorate welfare. There is, however, room for improving the coverage and welfare by extending a refundable credit to the individual insurance market. |
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Keywords: | E21 E62 I10 |
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