Tax subsidies for health insurance: costs and benefits

Abstract

The continued rise in the uninsured population has lead to considerable interest in tax-based policies to raise the level of insurance coverage. Using a detailed microsimulation model for evaluating these policies, we find that while tax subsidies could significantly increase insurance coverage, even very generous tax policies could not cover more than a sizable minority of the uninsured population. For example, a generous refundable credit that costs $13 billion per year would reduce the ranks of the uninsured by only four million persons. We also find that the efficiency of tax policies, in terms of the cost per newly insured, inevitably would fall as more of the uninsured were covered.