NCPA - National Center for Policy Analysis


January 14, 2005

Support is growing for a proposed solution to the rising number of uninsured Americans: a health insurance tax credit. If properly designed and implemented, a tax credit would allow uninsured, low income individuals and families to purchase affordable, quality health insurance, says Laura Trueman, executive director of the Coalition for Affordable Health Coverage (

To be effective, a health care tax credit must meet some specific criteria:

  • It must be refundable for low wage workers (that is, they get the subsidy even if they have no tax liability).
  • The credit must be advanceable, so that it can be used to pay monthly premiums as they come due, rather than a lump-sum payment received when tax returns are filed on April 15.
  • It must not come with costly mandates that raise the cost of insurance and price healthy people out of the market.
  • It must be widely available, so that the market is large enough to attract many buyers and sellers.
  • It must be limited in dollar amount so that it does not encourage wasteful spending.
  • It should be compatible with Health Savings Accounts (HSAs).

Congress should also consider using tax credits to help people afford the newly created Health Savings Accounts, says Trueman. HSAs are attractive to those with modest incomes because premiums are much lower with high deductible policies coupled with HSAs. A portion of the tax credit ($700 for individuals, $2,000 for families) could be used to purchase insurance and the remainder ($300 for individuals, $1,000 for families) could be deposited directly into a tax-free HSA to use for deductible expenses under a Bush administration tax proposal.

Source: Laura Trueman, "Health Care Tax Credits for the Uninsured," Brief Analysis No. 498, National Center for Policy Analysis, January 14, 2005.

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