Abstract
This paper introduces a model of optimal health insurance. This model provides theoretical guidance of the relationship between household preferences, cost-sharing, and premiums. It applies this model to understand how the income tax subsidy distorts optimal cost-sharing in health insurance. Typically, insurance protects individuals from financial risk. Health insurance plans, however, are frequently designed to provide coverage at non-catastrophic levels of financial loss. The presence of a health insurance subsidy in the United States tax code, which enables individuals to pay premiums in pre-tax dollars, encourages the purchase of more generous health insurance plans. Little is known about how the tax subsidy affects preferences for the structure of cost-sharing in private plans. This model illustrates how the tax subsidy can distort the optimal cost-sharing schedule. The model is tested empirically using claims data in the Medical Expenditure Panel Survey and a regression discontinuity strategy that uses discrete changes in the marginal tax rate at the Social Security taxable maximum for identification.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.