Jim has a risk premium of $500, and expected health care benefits from health insurance coverage worth $3,000 of which he only values $2,800 (because of some welfare loss).

a). What is the maximum insurance premium Jim is willing to pay for this insurance package if he were to pay from his net income (income after taxes)?

b). What is the maximum insurance premium Jim is willing to pay for this insurance package if payment is made through his employer (using Jim’s gross income)? Assume that Jim’s marginal tax rate is 30%.

c). What are his tax savings (if any) when he pays the insurance premium through gross income instead of net income?

Answer rating: 100% (QA)

a Maximum insurance shall be equal to to benefits as expected by Ji... View the full answer