Tax Credits and the Uninsured

Millions of uninsured Americans live in fear of a medical illness or accident that could cause them financial ruin, and the most viable policy option to provide them help is refundable tax credits, supported by public officials on both sides of the aisle in both houses of Congress and at both ends of Pennsylvania Avenue.

Yet another study was released over the weekend purporting to show that tax credits for the uninsured will be of little help or value. The Washington Post reported on Saturday (?Bush Health Plan Called Inadequate,? by Ceci Connolly, 5/11/2002) that the advocacy group, Families USA, has released a study showing that the $1,000 individual and $3,000 family tax credits proposed by President Bush and others would be like ?throwing a 10-foot rope to a person in a 40-foot hole.? They said individual premiums would be $2,459 for a healthy 25-year-old and $$4,934 for a healthy 55-year-old.

A number of other studies have proven otherwise:

  • eHealthInsurance, the on-line health insurance brokerage, says that at least 84 percent of the policies it sells not only are comprehensive but affordable, averaging $1,200 to $1,500 per person per year. Further, the tax credits proposed by President Bush would have covered the full cost of the policy for more than half of the 20,000 policies randomly selected for its study sample.

  • A study by the President?s Council of Economic Advisors showed similar results. The average price in their survey for a policy for a family of four was $3,287 for comprehensive coverage.

  • Just last week, the Council for Affordable Health Insurance released a survey showing health insurance to be accessible and affordable in the real world. ?In those states that haven?t destroyed the market for health insurance by excessive regulation, working families have numerous options at affordable prices,? the survey concluded.

  • Professor Mark Pauly of the Wharton School at the University of Pennsylvania has produced studies showing that at least half of the uninsured would obtain health insurance coverage if credits worth just half the value of a good policy were offered. His work also shows that health insurance is much more affordable for the great majority of people than the Families USA survey.

  • The National Association of Health Underwriters also produced a study that has called into serious question another study last year by the Kaiser Family Foundation showing that hypothetical patients would have trouble obtaining coverage. NAHU showed that Kaiser read the data on access to health insurance very selectively and that virtually all of the patients would have been able to obtain health insurance at a very reasonable premium.

One of the reasons for the discrepancy in the latest study is that Families USA searched on eHealthInsurance for policies with a $250 deductible and minimal copayments.

Few people with employment-based health insurance have such expensive health policies today with such low deductibles. And if people were spending at least some of their own money for a policy, they would quickly find that they could buy a much less expensive policy, still with comprehensive coverage, if they were to increase their deductibles and copayments, just like most do with their car insurance.

Deductibles in the Council of Economic Advisers? study were higher than $250 ($1,000/individual and $2,000 family), but it only makes sense that people would opt for a higher deductible to have the security of health coverage for major expenses – and still have money left for food, transportation, and housing. ?Expensive ?first dollar? coverage may not make good economics sense,? the CEA said.

It should also be pointed out that the alternative policy proposal supported by Families USA and others who oppose tax credits is an expansion of government programs, especially Medicaid. This would not only subject working Americans to the onerous paperwork requirements of Medicaid but likely would significantly curtail their access to private physicians.

Further, adding millions of working Americans to Medicaid is simply not an option where, in virtually every state, taking care of existing Medicaid patients already is creating havoc with state budgets.

Health credits are the right idea for millions of people who are shut out of the current system. When people have the authority – and additional resources through tax credits – to start purchasing their own health insurance, they will make better decisions about what is right for themselves and their families about the level of coverage and the price they can afford to pay.

The Senate is currently debating Trade Promotion Authority and providing health coverage for displaced workers is a key issue. This legislation provides a unique opportunity for Congress to act on providing refundable, advanceable tax credits to the uninsured to purchase the health coverage of their choice in a market responding to their real needs and preferences.

Full text of The Washington Post article:

Grace-Marie Turner is president of the Galen Institute, a not-for-profit health policy research organization based in Alexandria, VA.

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