Mandatory health insurance plan costs

Reference no: EM131800717

A mandatory health insurance plan costs $4,000. One worker earns $24,500 in employment income and $500 in investment income. Another worker earns $48,000 in employment income and $2,000 in investment income. A third worker earns $68,000 in employment income and $7,000 in investment income. A premium-based system would cost each worker $4,000. A wage tax-based system would cost each worker 8.5 percent of wages. An income tax-based system would cost each worker 8 percent of income. For each worker, calculate the cost of the insurance as a share of total income.

Worker 1 Worker 2 Worker 3
E=employment income $24,500 $48,000 $68,000
I= investment income $500 $2,000 $7,000
P=premium cost of insurance $4,000 $4,000 $4,000

Premium % of income= P/(E+I)
W= Wage tax cost of insurance = 0.085xE
wage tax cost % income= W/(E+I)
T= income tax cost = 0.080x(E+I)
Income tax cost as % of income= T/(e+I)

Which of the payment systems in Exercise 1.3 would impose the larger burden on those with incomes under $25,000: a plan financed via premiums, via the income tax, or via a payroll tax?
Which of the plns in exercise 1.3 would be fairer?
Which of the preceding questions can you answer using positive economics? For which of the preceding questions must you use normative economics?

Reference no: EM131800717

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