Which of the plans in exercise 1.3 would be fairest?

Exercise 1.3

A mandatory health insurance plan costs $4,000. One worker earns $24,500 in employment income and $500 in investment income. Another worker earns $48,000 in employment income and $2,000 in investment income. A third worker earns $68,000 in employment income and $7,000 in investment income. A premium-based system would cost each worker $4,000. A wage tax–based system would cost each worker 8.5 percent of wages. An income tax–based system would cost each worker 8 percent of income. For each worker, calculate the cost of the insurance as a share of total income.

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Worker 1 $24,500 $500 $4,000 E = Employment income I = Investment income P = Premium cost of insurance Premium as a percentage of income = P/(E + I) W = Wage tax cost of insurance = 0.085 X E Wage tax cost as a percentage of income = W/(E + I) T = Income tax cost of insurance = 0.080 × (E + I) Income tax cost as a percentage of income = T/(E + I) Worker 2 $48,000 $2,000 $4,000 Worker 3 $68,000 $7,000 $4,000