Reforming the U.S. Health Care System

Policy Backgrounders | Health

No. 149
Monday, April 26, 1999
by John C. Goodman & Merrill Matthews

I. Universal Coverage

A. Making A Commitment To Every American

  1. This plan builds on current policy in recognizing that whether or not people have health insurance is a national problem in which the federal government has a legitimate interest.
  2. But this is the first plan that precisely defines the federal government's financial interest and provides a vehicle for honoring the federal commitment, regardless of the choices made by the individual citizen.
  3. Under the plan, the federal government commits a fixed sum of money for health insurance for every American (say, $800 per adult and $2,400 for a family of four); the commitment is the same for everyone -- rich or poor, black or white, male or female.

B. Encouraging Everyone To Purchase Private Health Insurance

  1. Everyone who purchases private health insurance will be rewarded with a reduction in income taxes through a refundable health insurance tax credit.
  2. The credit will consist of a dollar-for-dollar reduction in income taxes for health costs up to a maximum amount (e.g., $2,400 for a family of four).
  3. Since the credit is fully refundable, even those who owe no income taxes will get the same financial help.
  4. In most cases, employees will get the same tax relief if they obtain insurance through an employer, but employer plans can only qualify for one type of tax subsidy -- either the tax credit system or the current system of excluding employer payments from employee taxable income.

C. Keeping Federal Role Purely Financial And Leaving The Robustness Of Private Health Insurance Benefits To Be Determined By Individual Choice, Competitive Markets And State Regulations

  1. This plan is not designed to subsidize the full cost of health insurance for an average family; in most places, federal tax relief probably will fund only a core benefits package with a very high deductible.
  2. Individuals and their employers will be free to purchase more complete benefit packages, but they will pay the difference with aftertax (unsubsidized) dollars.
  3. State governments will regulate the terms and conditions under which private insurance is bought and sold, just as they do now.

"Those who purchase private health insurance would receive a tax credit."

D. Ensuring That Those Who Elect To Remain Uninsured Will Have Access To A Social Safety Net With A Guaranteed Minimum Level Of Funding.

  1. The tax subsidy will encourage the purchase of private insurance -- those who obtain insurance will have more aftertax income.
  2. The flip side of a tax subsidy is a tax penalty -- those who fail to buy private insurance will pay higher taxes.
  3. But unlike the current system under which higher taxes paid by the uninsured simply become part of the Treasury Department's general revenues, the "tax penalties" paid under this plan will be sent to state and local governments to fund health care for the uninsured.

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