Health_Insurance_part2 - Health Insurance: Part 2 PAM 435...

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Unformatted text preview: Health Insurance: Part 2 PAM 435 February 19, 2008 Main benefit of health insurance is protecting people from the financial risk associated with hard to predict, low- probability , and expensive medical conditions. Several problems related to health insurance: adverse selection: old/sick people are unprofitable under community rating (CR), so health insurers may try to avoid them. Young/healthy people may choose not to buy health insurance under CR because premium is often much higher than their expected medical costs. Most non-elderly in the U.S. receive insurance through their employer:- tax subsidy makes health insurance cheaper through ones employer vs. buying it on your own.- wage controls in WWII made health insurance attractive Employees (not employers) pay for all/most of the premium. Summary of 2/14 Lecture Todays Objectives 1)Examine more problems caused by, or related to, health insurance 1)Discuss implications of not taxing health insurance premiums received from an employer 1)Who are the uninsured and why dont they have insurance? $50,000 Value of employee to the firm $50,000 $0 Health insurance premium- employer $4,000- employee $1,000 $50,000 Salary after insurance payments $45,000 $17,500 Employee taxed (35%) $15,750 $32,500 Salary after taxes $29,250 $5,000 Individual health insurance policy $0 $27,500 Money available for non-medical $29,250 spending Tax Advantages of Employer-Sponsored Health Insurance Employer Provides health Insurance Employer does not provide health insurance Employee saves $1,750 Value of Tax Exclusion, 2004 Total: $209 billion. Exceeds federal governments Medicaid payments, and is a loophole with out much justification. Those with incomes below $10,000 get an average subsidy of $102; those with incomes above $100,000 get an average annual subsidy of $2,780. Tax revenues lost because of this policy are probably enough to provide health insurance for the uninsured, with plenty left over. Source: Sheils and Haught, 2004. How the Tax Exclusion Creates Inefficiency By subsidizing health insurance, the policy encourages people to include in insurance policies high-probability , low-cost events (e.g., annual MD checkup and dentist visit) whose cost people could easily bear without insurance We essentially pay insurers extra (about 12-14% on average) due to the loading charge to get our own money back During WW II Serious labor shortages under federal wage controls Federal ruling to exclude health benefits from wage controls IRS concurred, thereby making health insurance tax- exempt for workers and tax deductible for employers System is not the result of Congressional legislation; rather, it came about from actions by the executive branch during a time of war ITS AN ACCIDENTAL SYSTEM!...
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Health_Insurance_part2 - Health Insurance: Part 2 PAM 435...

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