| The current tax code in the United States allows workers to exclude compensation in the form of employer-provided health insurance from their taxable income. One effect of this tax preference is that it lowers the price of a unit of health insurance, so employer-provided health insurance is implicitly subsidized.; This dissertation specifies and estimates a model of the health insurance market and uses the estimated model to produce estimates of the effects of the tax preference and several alternatives to it. In this model, each household experiences a level of illness. Prior to this illness, the household chooses a health insurance contract. After this illness, they choose everything else they consume to maximize their utility subject to a budget constraint. This optimization problem is used to derive an expected utility function that depends on the features of a health insurance contract. Households maximize this expected utility by choosing from the contracts offered by competitive insurance firms facing adverse selection. This problem is used to derive choices for health insurance that depend on the model parameters. The parameters are estimated, and the estimated model is used to produce estimates of the effects of the tax preference.; We find that the tax preference has larger cash-equivalent values for rich households than for poor households. The tax preference also has a more significant effect on the health care coverage chosen by rich households than by poor households.; It is plausible that the citizenry would object to these results, so we eliminated the tax preference and formulated an explicit subsidy that, we believe, obtains a more desirable distribution of resources.; In recent policy discussions, a ceiling on the value of employer contributions to employee health care plans has been proposed. We estimated the cash-equivalent value and the effect on health insurance choice of three ceilings. We found that it takes a low ceiling to significantly reduce the difference in the cash-equivalent value rich households obtain from the tax preference over that obtained by poor households. We found that the same is true regarding health insurance choice. |
