When Worlds Collide: Public Policy, Private Markets, and the Price of Health Insurance

Publication Date:

Publisher: Economic and Social Research Institute

Author(s): K. Merrell

Research Area: Health

Type: White Paper

Abstract:

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.