سیاست مالیاتی آمریکا و تقاضای بیمه سلامت: آیا می توان با یک سیاست پسرو رفاه را بهبود داد؟

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.

The premium for employer-based health insurance in the U.S. can be both income and payroll tax deductible while individual health insurance (IHI) purchased outside the workplace does not offer this tax break. This tax policy is regressive in two ways. First, data indicate that labor income is positively correlated with the access to employer-based health insurance, thus workers with higher earnings are more likely to enjoy the tax break. Second, conditional on having access to employer-based health insurance, the progressive income tax code in the U.S. makes the policy regressive because high income individuals in a higher marginal tax bracket receive a larger tax break than those in a lower tax bracket. We show that despite its regressiveness the deduction policy is welfare improving. Our result relies on the key difference between employer-based health insurance and IHI. The former, also called group health insurance (GHI), is required by law not to discriminate among employees based on health status, while in the latter insurance companies have an incentive to price-discriminate and offer favorable terms to healthy individuals. Insurance outside the workplace, therefore, offers less pooling and less risk-sharing. Pooling in GHI, however, relies on healthy agents, who are sensitive to the changes in the cost of insurance, to voluntarily cross-subsidize agents with higher health expenditures. Eliminating the tax subsidy can trigger a spiral of adverse selection and a rise in the group insurance premium. We show that completely abolishing the current policy can collapse the pooling in the GHI market and result in a welfare loss due to an increased exposure to health expenditure risks. Our work is a contribution to the literature of dynamic equilibrium models with heterogenous agents in incomplete markets.1 We add to this literature by incorporating idiosyncratic health expenditure risk which is partially insurable according to the endogenous insurance decisions. Our paper is also related to the literature on fiscal policy in incomplete markets.2 Several recent papers studied the role of health and medical expenditures in Aiyagari–Bewley type models. Livshits et al. (2007) and Chatterjee et al. (2007) argue that health expenditure shocks are an important source of consumer bankruptcies. Hubbard et al. (1995) add health expenditure risk and study the role of social safety net in discouraging savings by low income households. Palumbo (1999), De Nardi et al. (2005) and Scholz et al. (2006) incorporate heterogeneity in medical expenses to understand the pattern of retirement savings. Our model, differently from these papers, endogenizes the health insurance decision, rather than treating households’ out-of-pocket health expenditures as an exogenous shock.3 We take into account important general equilibrium effects of a reform, including the interaction between the health insurance demand and precautionary savings and the effect on the fiscal variables. We also quantify the welfare effect of reforms by computing the transition dynamics. The paper proceeds as follows. Section 2 introduces a simple two-period model to highlight the intuition of our results. Section 3 introduces the full dynamic model and Section 4 details the parameterizations of the model. Section 5 presents the numerical results and the last section concludes.4

Our policy experiments indicate that despite some issues entailed in the current tax system on health insurance, providing some form of subsidy and an incentive for the group insurance coverage has a merit. Employer-provided group insurance has the feature that everyone can purchase a contract at the same premium irrespective of any individual characteristics, most importantly current health status. Healthy agents would have an incentive to opt out of this contract and either self-insure or find a cheaper insurance contract in the individual market. A subsidy on group insurance can encourage them to sign up, maintain the diverse health quality of the insurance pool and alleviate the adverse selection problem that could plague the group insurance market. We conduct an experiment that confirms this intuition by showing that a complete removal of the subsidy would result in a deterioration of health quality in group insurance, a rise in the premium and a significant reduction in the insurance coverage, which together reduce welfare. Jeske and Kitao (2008) show robustness of our results across a wide variety of alternative model assumptions and parameterizations. Our work complements the existing studies on the health insurance policy by highlighting the additional insights one can obtain by employing a general equilibrium model. An alternative tax treatment of the health insurance premium affects the composition of agents who sign up and therefore the equilibrium insurance premium. Changing the exposure to health expenditure risks affects precautionary saving motives, which in turn affects the level of factor prices, consumption and ultimately welfare. We have also shown that it is important to capture fiscal consequences of a reform because providing a subsidy will affect the magnitude of distortionary taxation. Moreover, the changes in insurance demand are shown to affect other public welfare programs such as Medicaid. We also find that there is room for significantly increasing the insurance coverage and improving welfare by restructuring the current subsidy system. Extending the benefit to the individual insurance market is more effective if the subsidy is refundable than if it takes the form of deductions. The refundable credit policy is shown to raise the coverage by nearly 20% and enhance welfare despite an increase in the fiscal burden and a decrease in the aggregate output and consumption due to the lower demand for precautionary savings. Since our focus is on the effect of the tax policy, we chose not to alter other features of the model along the transition. An interesting extension will be to ask how agents’ insurance and saving decisions as well as the government's fiscal position will be affected in response to the future changes in the environment, in particular, the combination of the rising health costs and aging demographics. We leave these subjects for future research.