When Worlds Collide

Public Policy, Private Markets, and the Price of Health Insurance

Katie Merrell reviews characteristics of public policy and private markets for personal health insurance to understand how they affect the cost of insurance at different income levels. While policy-makers worry that expanding public insurance programs will "crowd out" private insurance, they typically do not acknowledge the reality of the private insurance market faced by low-wage workers, nor the public subsidy enjoyed by higher-wage workers who purchase insurance through their employers. The regressive tax treatment of employment-based health insurance, combined with its enhanced value, make private market health insurance most expensive for lowest-income purchasers.

This paper illustrates the net effect of public and private factors on the after-tax price per actuarial value of insurance, creating a framework that can be used to assess proposals for expanding insurance coverage in the United States. 

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