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Tax Credits Would Give Self-Insured a Break

Daily Policy Digest

Health Issues

Friday, December 14, 2001

House Ways and Means Committee chairman Bill Thomas (R-Calif.) has proposed including up to $10 billion to help laid-off workers keep health insurance in the economic stimulus package. Workers would be given vouchers to buy insurance on their own.

While some conservatives feel government should not use the tax code to influence behavior (sometimes called "social engineering"), supporters point out that government tax policy is not now neutral when it comes to health insurance. In fact, there is already an enormous entitlement that applies only to people who get health insurance through their employer -- a benefit not available to the uninsured or to those who buy their own coverage.

Compensation in the form of health insurance benefits isn't considered income and is thus free of taxes - thus government loses $140 billion each year in revenue.

Employer-sponsored health insurance (ESHI) is already the third biggest entitlement program in the country, trailing only Social Security and Medicare.

But those who buy their own coverage or who have none get no tax advantage except for a tax deduction for those expenses in excess of 7.5 percent of their gross income.

A tax credit, proponents argue, would begin to level the playing field between ESHI and individual health insurance coverage. Such a credit should approximate the tax subsidy available for ESHI -- about $1,000 per person. It could be done for roughly $30 billion a year, much of which we already spend on services to the uninsured. It isn't a new entitlement; rather, it makes the same entitlement available to everyone.

Source: Greg Scandlen (NCPA), " Health care tax credit benefits," Washington Times, December 13, 2001.

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