In the United States today, many employees receive compensation in the form of health insurance in addition to pecuniary remuneration. Health insurance, however, is tax deductible when it is received from an individual’s employer while wages are not. A Health Affairs report shows that this tax expenditure from excluding health insurance from the federal income tax cost the government over $100 billion in 2004.
Is this tax expenditure worth the cost? My “Health Care Tax Policy” paper examines the pros and cons of this policy. On one hand, the tax may encourage over-insurance; on the other the tax subsidy may eliminate some problems of adverse select. The conclusion of the paper is that the tax subsidy is efficient only if adverse selection is a significant problem, and if the cost savings from group policies outweigh any fixed costs firms incur from administering health care plans.
Please, feel free to take the time to read the paper and give me some feedback.