Microsimulation estimates of the effects of tax subsidies for health insurance

The continued vise in the number of non-elderly Americans without health insurance has led to considerable interest in tax-based policies to raise the level of insurance coverage. This paper describes a detailed microsimulation model that has been developed to evaluate such tax-based policies, and its findings for the impact of policies on government costs and insurance coverage. I find that while tax subsidies could significantly increase insurance coverage, even very generous tax policies could not cover more than a sizable minority of the uninsured population. But there are several design features that can clearly make tax policy more effective: using tax credits rather than deductions; making credits refundable; and addressing the timing mismatch between when instance purchases are made and tax refunds are received. I also document a clear tradeoff between the scope of tax subsidies and their efficiency.