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   EMPLOYEE BENEFITS, COMPENSATION & PENSION LAW ABSTRACTS
             Sponsored by Pension Governance, LLC
               Vol. 8, No. 34: October 4, 2007

Editor:     PAMELA J. PERUN
              Policy Director, Aspen Institute - Initiative on
              Financial Security
              PAMELA@PLANETNOW.COM
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                     Topic of This Issue:
                    Health Care and Taxes
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T A B L E    O F    C O N T E N T S

"Dynamic Inefficiencies in Employment-Based Health Insurance
 System: Theory and Evidence"
    HANMING FANG
        Duke University - Department of Economics, National
        Bureau of Economic Research (NBER)
    ALESSANDRO GAVAZZA
        Yale School of Management, Yale University - Cowles
        Foundation

"Tax Benefits for Health Insurance: Critiques and Proposals"
    DOUG JONES
        Affiliation Unknown

"Tax Incentives and the Decision to Purchase Long-Term Care
 Insurance"
    CHARLES COURTEMANCHE
        Washington University, St. Louis - Department of
        Economics
    DAIFENG HE
        Washington University, St. Louis - Department of
        Economics

"U.S. Tax Policy and Health Insurance Demand: Can a Regressive
 Policy Improve Welfare?"
    KARSTEN JESKE
        Federal Reserve Bank of Atlanta
    SAGIRI KITAO
        New York University - Department of Economics

"Health Insurance and Taxes: Can Changing the Tax Treatment of
 Health Insurance Fix Our Health Care System?"
    PAUL FRONSTIN
        Employee Benefit Research Institute (EBRI)
    DALLAS L. SALISBURY
        Employee Benefit Research Institute (EBRI)

"Of State Laboratories and Legislative Alloys: How 'Fair Share'
 Laws Can be Written to Avoid Erisa Preemption and Influence
 Private Sector Health Care Reform in America"
    DARREN ABERNETHY
        College of William and Mary
_________________________________________________________________

"Dynamic Inefficiencies in Employment-Based Health Insurance
 System: Theory and Evidence"

  Author:  HANMING FANG
             Duke University - Department of Economics, National
             Bureau of Economic Research (NBER)
   Email:  hanming.fang@duke.edu
Auth-Page:  http://ssrn.com/author=281427

 Contact:  ALESSANDRO GAVAZZA
             Yale School of Management, Yale University - Cowles
             Foundation
   Email:  alessandro.gavazza@yale.edu
Auth-Page:  http://ssrn.com/author=492846

Full Text:  http://ssrn.com/abstract=1008368

ABSTRACT: We investigate how the employment-based health
insurance system in the U.S. affects individuals' life-cycle
health-care decisions. We take the viewpoint that health is a
form of human capital that affects workers' productivities on the
job, and derive implications of employees' turnover on the
incentives to undertake health investment. Our model suggests
that employee turnovers lead to dynamic inefficiencies in health
investment, and particularly, it suggests that employment-based
health insurance system in the U.S. might lead to an inefficient
low level of individual health during individuals' working ages.
Moreover, we show that under-investment in health is positively
related to the turnover rate of the workers' industry and
increases medical expenditure in retirement.

We provide empirical evidence for the predictions of the model
using two data sets, the Medical Expenditure Panel Survey (MEPS)
and the Health and Retirement Study (HRS). In MEPS, we find that
employers in industries with high turnover rates are much less
likely to offer health insurance to their workers. When employers
offer health insurance, the contracts have higher deductibles and
employers' contribution to the insurance premium is lower in high
turnover industries. Moreover, workers in high turnover
industries have lower medical expenditure and undertake less
preventive care. In HRS, instead we find that individuals who
were employed in high turnover industries have higher medical
expenditure when retired. The magnitude of our estimates suggests
significant degree of intertemporal inefficiencies in health
investment in the U.S. as a result of the employment-based health
insurance system. We also evaluate and cast doubt on alternative
explanations.
______________________________

"Tax Benefits for Health Insurance: Critiques and Proposals"
    Federal Bar Association Section of Taxation, Forthcoming


 Contact:  DOUG JONES
             Affiliation Unknown
   Email:  dougjones771@hotmail.com
Auth-Page:  http://ssrn.com/author=720051

Full Text:  http://ssrn.com/abstract=990976

ABSTRACT: The aim of this paper is to discuss the flaws in the
current system of excluding employer provided health insurance
from income and to critique various proposals to reform the
system. While the tax system may not be the most efficient way to
ensure that all or most Americans have health insurance, the tax
system is the most politically feasible way for the federal
government to get involved in achieving such a goal. In light of
this, this paper adopts the thesis that a supplemental system of
refundable tax credits whose benefits are aimed at those with low
incomes is the best system for achieving the goal of insuring as
many Americans as possible. It should be noted that this paper
will argue for such a system to work in tandem with the current
system. It is simply too risky to completely overhaul a system
under which 75 percent of all Americans are insured. This paper
adopts the view that reform should build upon existing coverage
as opposed to eroding it.

Part II will examine the strengthens and weaknesses of the
current system of encouraging health insurance through the
exclusion of employer provided health insurance from income and
will conclude that while reform is needed, the current system
should not be abolished. Part III will critique the system of
Health Savings Accounts ("HSAs") which the second President Bush
proposed. This part concludes that the HSA system is bad policy
because it will actually increase the number of uninsured and its
benefits are inappropriately aimed at the healthy and the
wealthy. Finally, Part IV examines a reform proposal of a system
of refundable tax credits - designed to work in tandem with the
current system - whose benefits are aimed at those with low
incomes. This part argues for such a reform proposal because it
will greatly decrease the number of uninsured and because its
benefits are appropriately aimed at those who actually need help
with purchasing health insurance.
______________________________

"Tax Incentives and the Decision to Purchase Long-Term Care
 Insurance"

  Author:  CHARLES COURTEMANCHE
             Washington University, St. Louis - Department of
             Economics
   Email:  cjcourte@artsci.wustl.edu
Auth-Page:  http://ssrn.com/author=450981

 Contact:  DAIFENG HE
             Washington University, St. Louis - Department of
             Economics
   Email:  dhe@artsci.wustl.edu
Auth-Page:  http://ssrn.com/author=397763

Full Text:  http://ssrn.com/abstract=1012969

ABSTRACT: In recent years, U.S. policymakers have been exploring
options for expanding the market for private long-term care (LTC)
insurance in order to ease the burden on Medicaid. This paper
studies the impact of the tax incentive prescribed in the Health
Insurance Portability and Accountability Act of 1996 (HIPAA) on
people's LTC insurance purchasing behavior. Using data from the
Health and Retirement Study, we find that the tax incentive in
HIPAA increased the take-up rate of private LTC insurance by 3.2
percentage points, or 25%, for the individuals who qualified for
the tax benefit. While this magnitude seems substantial, the
corresponding increase in the overall prevalence of LTC insurance
was less than half a percentage point. We therefore conclude
that, although people did respond to the tax incentive on LTC
insurance, tax incentives alone are unlikely to expand the market
substantially. We also present, to our knowledge, the first
estimate of the price elasticity of demand for LTC insurance of
around -3.6, suggesting that demand is highly elastic, at least
at the current low ownership rate.
______________________________

"U.S. Tax Policy and Health Insurance Demand: Can a Regressive
 Policy Improve Welfare?"
    FRB of Atlanta Working Paper No. 2007-13


  Author:  KARSTEN JESKE
             Federal Reserve Bank of Atlanta
   Email:  Karsten.Jeske@atl.frb.org
Auth-Page:  http://ssrn.com/author=288488

 Contact:  SAGIRI KITAO
             New York University - Department of Economics
   Email:  sagiri.kitao@nyu.edu
Auth-Page:  http://ssrn.com/author=364258

Full Text:  http://ssrn.com/abstract=998568

ABSTRACT: The U.S. tax policy on health insurance is regressive
because it favors only those offered group insurance through
their employers, who tend to have a relatively high income.
Moreover, the subsidy takes the form of deductions from the
progressive income tax system, giving high-income earners a
larger subsidy. To understand the effects of the policy, we
construct a dynamic general equilibrium model with heterogenous
agents and an endogenous demand for health insurance. We use the
Medical Expenditure Panel Survey to calibrate the process for
income, health expenditures, and health insurance offer status
through employers and succeed in matching the pattern of
insurance demand as observed in the data. We find that despite
the regressiveness of the current policy, a complete removal of
the subsidy would result in a partial collapse of the group
insurance market, a significant reduction in the insurance
coverage, and a reduction in welfare coverage. There is, however,
room for raising the coverage and significantly improving welfare
by extending a refundable credit to the individual insurance
market.
______________________________

"Health Insurance and Taxes: Can Changing the Tax Treatment of
 Health Insurance Fix Our Health Care System?"
    EBRI Issue Brief, No. 309, September 2007


 Contact:  PAUL FRONSTIN
             Employee Benefit Research Institute (EBRI)
   Email:  FRONSTIN@EBRI.ORG
Auth-Page:  http://ssrn.com/author=255140

Co-Author:  DALLAS L. SALISBURY
             Employee Benefit Research Institute (EBRI)
   Email:  SALISBURY@EBRI.ORG
Auth-Page:  http://ssrn.com/author=255010

Full Text:  http://ssrn.com/abstract=1015540

ABSTRACT: This paper examines fundamental tax reform as it
relates to employment-based health benefits and health insurance.
It focuses on the specifics of the Bush proposal, but the issues
apply to the overall concept of changing the way health insurance
is taxed. It summarizes the current tax treatment of health
benefits, presents the details of changing the current tax
treatment of health insurance to a standard deduction, discusses
tax credits as an alternative to capping the current exclusion of
health benefits from taxable income, and addresses various
implications of such proposals.
______________________________

"Of State Laboratories and Legislative Alloys: How 'Fair Share'
 Laws Can be Written to Avoid Erisa Preemption and Influence
 Private Sector Health Care Reform in America"
    William & Mary Law Review, Vol. 49, No. 5, 2008


 Contact:  DARREN ABERNETHY
             College of William and Mary
   Email:  djaber@wm.edu
Auth-Page:  http://ssrn.com/author=688071

Full Text:  http://ssrn.com/abstract=1012060

ABSTRACT: This Note examines Maryland's preempted statute and the
United States District Court case that granted its opponents
declaratory relief. After reviewing the Fair Share Act, the
federal ERISA statute, and the significant changes in Supreme
Court jurisprudence towards ERISA preemption in the past decade,
this Note will offer new approaches through which states can
modify the analytical framework outlined by the Fair Share Act to
achieve improvements in the state-financing of Medicaid through
large private employers. The goal of this Note is to analyze ways
to fit future "fair share" legislation within the non-preempted
confines of ERISA.

The proposed modifications include: (1) rewriting "fair share"
laws as unequivocal, non-regulatory Medicaid taxes from which
compliant employers may become exempt; (2) dulling the sharp edge
of the FSA's punitive texture through decreasing the 100%
shortfall tax to 35-50%; (3) expanding the options that employers
have as "outlets" for meeting the 8% health expenditure
benchmark, such as through an increase in non-medical fringe
benefits, thus giving the statute a less coercive feel; (4) a
"total package" benefits approach analogous to unpreempted ERISA
prevailing wage cases; and (5) a state-initiated higher minimum
wage for very large employers, with an incentivized exemption
provision stating that an employer can revert back to the state
or federal government's general minimum wage if the employer
spends a certain percentage of payroll wages on employee health
insurance.