HealthInsuranceLecture

HealthInsuranceLecture - 1 Health Insurance: Outline Should...

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Unformatted text preview: 1 Health Insurance: Outline Should employer-provided health insurance be subsidized through the tax system? Overview of US health insurance system (Why) does the US spend too much on health care? Two views: Moral hazard Adverse selection Reform options Tax Subsidy to Employer-Provided Health Insurance tax subsidy to employer-provided health insurance Workers are taxed on their wage compensation but not on compensation in the form of health insurance, leading to a subsidy to health insurance provided through employers. Tax Subsidy to Employer-Provided Health Insurance tax subsidy to employer-provided health insurance Workers are taxed on their wage compensation but not on compensation in the form of health insurance, leading to a subsidy to health insurance provided through employers. Tax Subsidy to Employer-Provided Health Insurance The subsidy to employer-provided health insurance is generally not well understood. This is not a subsidy to employers but rather a subsidy to employees for insurance purchased in the employment setting. From the employers perspective, whether she pays you in wages or health insurance is irrelevant; either way, a dollar of employer spending has the same effect on the firms bottom line (since any type of employee compensation is deductible from corporate taxation). From the workers perspective, however, there is a large difference: by being paid in health insurance rather than wages, the worker reduces her tax payments. If the government wanted to end the tax subsidy, it would not do so by increasing the corporate tax paid by the firm; it would instead include employer spending on health insurance as part of an employees taxable income. 5 Tax Subsidy for Health Insurance A subsidy to employees, not employers Compensation received by an employee in the form of health insurance is exempt from taxation Thus, compensation in the form of health insurance is tax-favored 6 Tax Subsidy for Health Insurance Consequences? Depends on elasticity of health insurance spending and coverage with respect to the after-tax price Job lock: the unwillingness to move to a better job for fear of losing health insurance HEALTH INSURANCE AND MOBILITY Is job lock an important problem in reality? Initially, a large literature compared the mobility rate of those who have and do not have health insurance. A more sophisticated literature in the 1990s surmounted this problem in two different ways. First, studies used a difference-in-difference strategy that compared a treatment group of those who valued health insurance particularly highly with a control group of those who did not....
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HealthInsuranceLecture - 1 Health Insurance: Outline Should...

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