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

Karsten Jeske, Sagiri Kitao

Research output: Contribution to journalArticlepeer-review

37 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

Keywords

  • Health insurance
  • Risk-sharing
  • Tax policy

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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