In this paper, we calculate the consequences for health spending and federal revenues of an above-the-line deduction for out-of-pocket health spending. We show how the response of spending to this expansion in the tax preference can be specified as a function of a small number of behavioral parameters that have been estimated in the existing literature. We compare our estimates to those from other researchers. And, we use our analysis to derive some implications for tax policy toward HSAs.
R. Glenn Hubbard is a visiting scholar at AEI. John F. Cogan is the Leonard and Shirley Ely senior fellow at the Hoover Institution. Daniel P. Kessler is Professor of Business and Law at Stanford University.