Congressional Health Care Briefing Book |
Insuring the Uninsured
"Most people who purchase their own health insurance receive no tax subsidy."
"Under current tax law, families in the top fifth of the income distribution get almost six times as much help from government as those in the bottom fifth."
"As many as one out of every four uninsured people lacks health insurance because of costly state regulations." |
As many as 39 million Americans are believed to lack health insurance at any one time, and federal and state policies deserve a large share of the blame for this development. To correct the problem, we should (1) grant tax deductions (or tax credits) to people who purchase health insurance on their own, (2) make the tax subsidy more generous for lower-income families and (3) allow all individuals the opportunity to buy "no-frills" health insurance, unencumbered by state-mandated health insurance benefit laws. Creating Tax Fairness: Equal Treatment of Equals. The tax law gives employers and employees strong incentives to replace wages with nontaxable health insurance benefits. These incentives make the purchase of health insurance very attractive, even if it would not otherwise have been purchased. The total federal tax subsidy for employer-provided health insurance is about $84 billion per year, and state and local governments add another $10 billion. That equals almost $1,000 a year for every American family. Yet most of the 39 million individuals who do not have health insurance and about 10 percent of insured individuals who purchase health insurance on their own have no opportunity to receive a tax subsidy. As a result, some employees of large companies have lavish health insurance plans (all tax deductible) while other Americans have no tax-subsidized insurance. Equity in taxation requires that all Americans receive the same tax encouragement to purchase health insurance, regardless of employment. Accordingly, the self-employed, the unemployed and people who purchase health insurance on their own should be entitled to a tax deduction or tax credit that is just as generous as the tax treatment they would have received if their policies had been provided by an employer. Creating Tax Fairness: More Help for Lower-Income Families. Under the current system, the ability to exclude employer-provided health insurance from taxable income is more valuable to people in higher tax brackets. Since the value of the tax subsidy rises with income, it is hardly surprising that the lower a family's income, the less likely the family is to have health insurance. Current tax subsidies favor high-income over low-income families:
A better approach is to offer everyone a tax credit for the purchase of health insurance, with higher credits for lower-income families. For individual purchases of health insurance, a tax credit can be entered on individual income tax returns. The cost of employer-provided insurance can be included in the gross wages of employees and tax credits entered on their tax returns. For those with very low incomes, there can be refundable tax credits -- with government providing most of the funds for their health insurance premiums through a system of vouchers. Creating Freedom of Choice in Health Insurance. A major reason why so many people lack health insurance is that state regulations have increased insurance costs and priced millions of people out of the insurance market. Over the past two decades, there was an explosion of state laws requiring health insurance policies to cover specific diseases and specific health care services. These laws are called mandated health insurance benefit laws. In 1970, there were only 30 mandated health insurance benefits in the United States. Today there are more than 1,000. They cover ailments from AIDS to alcoholism and drug abuse and services from acupuncture to in vitro fertilization. Mandated benefits cover everything from the life-prolonging procedures to purely cosmetic devices: heart transplants in Georgia, liver transplants in Illinois, hairpieces in Minnesota, marriage counseling in California and pastoral counseling in Vermont. These laws reflect the fact that special-interest groups now represent virtually every disease, disability and health care service. Collectively, the mandates have added considerably to the cost of health insurance, and they prevent people from buying no-frills insurance at a reasonable price. We estimate that as many as one out of every four uninsured people lacks health insurance because state regulations have increased its price. This means that as many as 10 million people lack health insurance because of current government policies. Employees of the federal government, Medicare enrollees and employees of self-insured companies are exempt from these costly regulations under federal law. Often, state governments exempt Medicaid patients and state employees. Thus the full burden falls on employees of small businesses, the self-employed and the unemployed -- the groups that are increasingly uninsured. Freedom of choice in health insurance means being able to buy a policy tailored to individual and family needs. Accordingly, insurers should be permitted under federal law to sell federally qualified health insurance that would be free from state mandated benefits. |