1 .3 A mandatory health insurance plan costs $4,000. One worker earns $24,500 in

Question

1 .3 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

Explanation / Answer

(Worker 3)

Premium as a percentage of income = P/(E+I) =4000/25000 0.16 16% (Worker 1) =4000/50000 0.08 8% (Worker 2) =4000/75000 0.05 5.00% (Worker 3) Wage tax cost of insurance = 0.085*E =0.085*24500 2082.5 (Worker 1) =0.085*48000 4080 (Worker 2) =0.085*68000 5780 (Worker 3) Wage tax cost as a percentage of income =W/(E+I) =2082.5/25000 0.0833 8.30% (Worker 1) =4080/50000 0.0816 8.20% (Worker 2) =5780/75000 0.08 7.70%

(Worker 3)

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