The current tax rate paid by employees in a company on their income is 30 percent. Currently, the employer provides workers with a health insurance policy that is worth $3,000 per year.
a. Assuming that the company has 1,000 workers, what is the indirect government subsidy for health insurance for workers in the company?
b. Suppose that instead of providing the workers with health insurance as a fringe benefit, the employer sold them the policy for a $3,000 annual premium.
How would this change affect the typical worker, assuming that he or she still wants $3,000 worth of insurance under the new arrangement?