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Selected research from leading health care experts whose findings have a direct bearing on public policies effecting medical progress. Research is chosen based on its quality and relevance by the Medical Progress Today editorial staff.

Selected Research

Evaluating Effects of Tax Preferences on Health Care Spending and Federal Revenues
John F. Cogan, R. Glenn Hubbard, Daniel P. Kessler, NBER, 12-12-06

These authors explore the likely consequences of allowing individuals to deduct health expenses from their federal income tax. Although they admit that this is a "second best policy" they argue that it is a definite improvement on the status quo.

As Mark Pauly's (1986) classic review shows, virtually all observers of health policy since Martin Feldstein's (1973) seminal article have agreed that the tax preference for employer-provided health insurance—under which employer contributions to employee health insurance are deductible to the employer and non–taxable to the employee—encourages overconsumption of health services in the United States. By making health spending in general, and insured health spending in particular, appear less costly than they are, the tax preference gives employees the incentive to take compensation as health insurance rather than cash, even if they would otherwise prefer not to...

In this paper, we show that extending deductibility to out–of–pocket spending, while a second–best policy change, is nonetheless likely to lead to significant improvements in efficiency under a range of assumptions about demand for health care and health insurance.

...Also, while not emphasized here, expanding deductibility may also significantly reduce rates of uninsurance by lowering the cost of health insurance. Finally, we view as an important topic for future work more analysis of the relationship between tax deductibility and Health Savings Accounts.



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