The pay raise instead of the health insurance explain

Reference no: EM13327334

Suppose in 2008 a Census Bureau report indicated that over 62 percent of the U.S. population is covered by employer-sponsored health insurance plans. Consider an employee who does not receive employer-based health insurance and must divide her $1000 per week in after tax income between health insurance and "all other goods." Draw this worker's budget constraint if the price of health insurance is $125 per week and the price of "all other goods" is $100 per week. (Label it BC1.) On the same graph, illustrate the budget constraint if the employer agreed to give this employee $125 worth of health insurance per week (under current tax laws, this form of compensation is nontaxable). (Label it BC2.) On the same graph, show the budget constraint if the employer just gave her a $125 a week raise that was taxable at a rate of 25%? (Label it BC3.) Would any or all employees be better or worse off with the pay raise instead of the health insurance? Explain.

Reference no: EM13327334

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