September 14, 2020

Against Labor Tax funding for health

The Case Against Labor-Tax-Financed Social Health Insurance For Low- And Low-Middle-Income

Adam Wagstaff laid out a strong case against labor-tax financing for health insurance,
based on analyses of the potential revenue generation, the distributional implications, the impact on the labor market, and the potential for universality in service coverage
A key problem with labor-tax social health insurance is that it can actually redistribute resources toward the wealthy, not the poor. This occurs when general revenues subsidize labor-tax social health insurance institutions that predominantly serve upper-income groups instead of having those subsidies be used to extend coverage to the rest of the population. When expenditures on health care for the eligible workers in the formal sector—already higher than expenditures for the general population—exceed their contributions, the resulting subsidy is financed through taxes levied on the entire population (for example,value-added taxes), which is a form of upward redistribution.