Gainers and losers under a tax-based health care reform plan

Currently, it appears that health care for the nonpoor and nonelderly in the United States will continue to be financed primarily through a private insurance market rather than a public insurance program. Even if this market-based system achieves maximum efficiency, a premium subsidy for low-income, non-Medicaid-eligible individuals likely will be required to make health insurance affordable for all Americans. There are advantages to carrying out that redistribution at the federal, rather than state or local, level, possibly using credits or deductions within the federal personal income tax system. Which individuals decide to claim these tax credits or deductions, and how much the tax subsidies would have cost in 1993, are examined in this paper. A tax on employer-provided health benefits finances the subsidy, and the paper analyzes characteristics of gainers and losers under the reform. The study uses data from the 1987 National Medical Expenditure Survey (NMES) to develop a microsimulation model of the federal personal income tax system.