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A model with health expenditure-based insurance payouts was created to assess the effects of providing subsidies for out-of-pocket health expenses. Findings based on the model reveal that subsidizing coinsurance payments lead to reduced health expenditures and increased welfare if health insurance premiums are payable with pretax dollars. Equal subsidies are also shown to be close to ideal in the presence of deadweight loss. In its absence, the ideal subsidy to coinsurance is greater than that provided to premiums, however, equal subsidies to both will still remain welfare improving.