Health and Taxes: An Assessment of the Medical Deduction.

by Bridger M. Mitchell, R. J. Vogel

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Indirect tax subsidies to health insurance and medical expenses totaled $3.8 billion in 1970 and will reach $7.6 billion in 1976. These subsidies create incentives to purchase health care through insurance rather than directly. Above $6000 of income most families can obtain a subsidy that exceeds the administrative costs of group insurance policies. Increased health insurance coverage, by reducing the net price of health care, increases the demand for health care and, with limited medical resources, leads to higher hospital and physician prices. The medical deduction under the personal income tax is a last-resort health insurance plan. Despite its income-related deductible and coinsurance parameters, the deduction provides larger benefits to high income taxpayers and limited catastrophic protection. Tax subsidies are distributed in near proportion to income. The study considers several alternative tax policies that would provide greater health benefits to lower income families and increase protection against the expense of catastrophic illness. 52 pp. Bibliog.

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