Effects of a $1,000 Refundable Tax Credit for Health Insurance
September 13, 2001
One way to reduce the number of uninsured Americans is to help them pay private health insurance premiums through a refundable tax credit or voucher. However, critics of this approach say the tax credit amount would have to be very high in order to induce the uninsured to obtain coverage. Would a $1,000 refundable tax credit provide enough financial assistance to enable the uninsured to purchase health insurance?
In a new paper, three health economists investigate the impact of a $1,000 refundable tax credit for self-only coverage on the net premiums paid by the purchaser. They estimate the number of insurance purchases for a representative sample of potential buyers in the individual insurance market.
Two methods are used to estimate the distribution of premiums: predicted premiums based on a sample of actual purchasers, and premium quotations drawn from an e-insurance Web site. In most of the simulations,
- The net premiums for half or more of the prospective buyers are reduced to zero or low levels.
- The number of uninsured is reduced by between 21 percent and 85 percent depending on the size of the deductible in the benchmark plan.
However, the results are sensitive to assumptions about insurer underwriting practices.
Source: Mark V. Pauly, Bradley Herring and David Song, "Tax Credits, the Distribution of Subsidized Health Insurance Premiums, and the Uninsured," NBER Working Paper No. W8457, September 2001, National Bureau of Economic Research.
For NBER text
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