Health Insurance for Everyone

Commentary by John C Goodman

The number of Americans without health insurance at any one time has risen steadily over the past decade and now totals more than 40 million, nearly 10 million of them children. Unwise federal policies contribute to this trend.

One culprit is federal tax policy. The federal government subsidizes private health insurance by excluding employer-paid premiums from an employee's taxable income. Yet the unemployed and people who work for small companies that do not provide insurance get virtually no tax relief when they purchase their own coverage. (The self-employed get a partial tax deduction equal to 40 percent of expenses).

We get what we subsidize. Ninety percent of people who have private insurance get it through an employer. Moreover, these tax subsidies go mainly to middle- and upper-income families who need them the least. Families in the top fifth of the income distribution get about six times as much relief as those in the bottom fifth.

Another culprit: a new federal law and a growing number of state laws that require insurers to accept applicants regardless of their health status. Although well-intentioned, these laws encourage people who cannot get tax-subsidized insurance to remain uninsured until after they get sick.

What happens when uninsured people can't pay their medical bills? Historically, our health care system has overcharged some patients so others could be undercharged or given free care. Yet today's medical marketplace is becoming so competitive that the ability to shift costs in this way is disappearing. As the problem of lack of insurance grows, the only available solution is evaporating.

President Clinton has proposed insuring about half of the children who are not covered, but has largely ignored the other 5 million uninsured children and 30 million uninsured adults. Thus far, the Republicans have not announced any major health policy proposal. However, health economists at the National Center for Policy Analysis, the Progressive Policy Institute and other think tanks have devised a way to insure all the uninsured, either directly or indirectly. It would work like this:

Anyone not insured by an employer or government should receive a tax credit for buying health insurance. Low-income families would receive a refund even if they owed no taxes. Since the average tax subsidy for employer-provided insurance is about $500 per year, a $500-per-person subsidy would create tax fairness for people who buy their own insurance. And since routine health insurance for a child averages between $700 and $800 a year in most cities, so a $500 subsidy should cover the cost of at least a catastrophic plan.

Under this proposal, the decision to insure should be voluntary. But for people who remain uninsured, government would send the unclaimed $500 tax credit money to the individual's state or local community to be part of a safety net for indigent health care. This would give communities a guaranteed source of funds that would grow or shrink depending on the number of uninsured residents.

How to pay for these subsidies? Two possible sources of funds are the proposed $500 per child tax credit and the Earned Income Tax Credit (EITC).

The child tax credit would go mostly to middle-income families, and it could be made conditional. If the family has been responsible and obtained health insurance for the child, it would receive the $500. But if the child is uninsured, the family would have a choice of buying private health insurance or forgoing the subsidy.

The EITC program, which already gives tax "refunds" of as much as $3,556 to about 17.2 million low-income families could be used in the same way. About two out of three EITC households (and three fourths of EITC children) already have health insurance, and they would get their full EITC benefits. However, those who choose to remain uninsured would have their refund reduced by $500 per uninsured family member.

Under this proposal, everyone would be insured directly or indirectly. Everyone would either have private insurance or would rely on a public safety net as insurer of last resort. Moreover, everyone would be given a tax incentive that would encourage the purchase of insurance and make that insurance more affordable.