Taxing health insurance: how much is enough?

by Charles E. Phelps


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The Reagan Administration proposes to limit the amount of health insurance premiums remaining tax-exempt, hoping to curtail rising health costs (by reducing insurance coverage, hence medical care use) and to raise revenues to offset the large federal deficit. The proposed change will have little effect on either dimension. Most likely consumer response will reduce dental, drug, and eyeglass insurance but leave essentially unchanged the insurance coverage for hospital and doctor care--the most bothersome health cost sectors. Larger, differently structured tax changes offer the possibility of dramatically reducing health costs, as well as raising (at maximum) $27 billion per year in new tax revenues.

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