Abstract :
The U.S.taxpolicyonhealthinsuranceisregressivebecauseitsubsidizesonlythose
offeredgroupinsurancethroughtheiremployers,whoalsotendtohavearelativelyhigh
income.Moreover,thesubsidytakestheformofdeductionsfromtheprogressive
incometaxsystemgivinghighincomeearnersalargersubsidy.Tounderstand
theeffectofthepolicy,weconstructadynamicgeneralequilibriummodelwith
heterogenousagentsandanendogenousdemandforhealthinsurance.Acomplete
removalofthesubsidymayleadtoapartialcollapseofthegroupinsurancemarket,
reduce theinsurancecoverageanddeterioratewelfare.Thereis,however,roomfor
improvingthecoverageandwelfarebyextendingarefundablecredittotheindividual
insurancemarket
