NCPA - National Center for Policy Analysis

Bush Health Plan Tax Credits

August 20, 2002

The United States tax code offers several incentives to provide health insurance. However, millions of Americans aren't eligible for those incentives. To correct this, President Bush has proposed a refundable tax credit for health insurance for millions of mostly low-income employees who aren't covered by a company health plan:

  • The credit would provide a subsidy of up to 90 percent of the cost of health insurance premiums.
  • The maximum credit would be $1,000 per adult and $500 per child for a maximum family credit of $3,000.
  • The maximum 90 percent subsidy would be available to the lowest income groups, with it being phased down at higher income levels.

Because the tax credit is refundable, even low-income taxpayers would be able to use it. Even better, the tax credit is applicable when purchasing insurance, so families do not have to wait until tax filing season to access the money.

Moreover, the plan retains flexibility. Under the president's proposal:

  • Low-income people could purchase private insurance for themselves and their families through state-sponsored health insurance purchasing groups or high-risk pools -- expanding coverage options and encouraging risk pooling.
  • States could make additional contributions of up to $2,000 per adult for families with incomes up to 133 percent of the poverty line.

According to estimates by the Treasury Department, approximately 17 million Americans would take up the president's proposed tax credit. This total includes 6 million Americans who would otherwise have been uninsured for some or all of a year and more than 8 million Americans who would have had inadequate non-employer insurance. Additionally, a comprehensive Treasury analysis showed that only 15 percent of those taking up the credit would otherwise have obtained employer coverage.

Finally, President Bush's plan stresses flexibility and strives to minimize the "crowd-out" effect on private health insurance companies.

Source: Mark McClellan (member, President's Council of Economic Advisers), "The Bush Health Agenda - Part II: Tax Credit for the Uninsured," Brief Analysis No. 415, August 20, 2002, National Center for Policy Analysis.

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