Tax Subsidy for Employer Provided Insurance Insurance Option Marginal Product of Labor Insurance Provided by Employer Pre-tax Income (20% tax rate) After-tax Income Privately Purchased Insurance Income Left for Other Consumption Privately Purchased $50,000 $40,000 $5,000 $35,000 Employer Provided $50,000 $5,000 $45,000 $36,000
$100 S=MC $10 D Q1 Q2 Price of each visit Number of visits to doctor’s office Q1 Q2
$ of Marginal Health Benefits $5 B $1 C $0.10 $1,000 $2,000 $5,000 $ of Medical Spending