U.S. tax policy and health insurance demand: Can a regressive policy improve welfare?

Karsten Jeske, Sagiri Kitao

Research output: Contribution to journalArticle

35 Citations (Scopus)

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.

Original languageEnglish
Pages (from-to)210-221
Number of pages12
JournalJournal of Monetary Economics
Volume56
Issue number2
DOIs
Publication statusPublished - 2009 Mar 1

Keywords

  • Health insurance
  • Risk-sharing
  • Tax policy

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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