GOVERNMENT & MEDICINE

Health insurance proposals provide reform blueprint

Tax credits and existing safety net programs are explored as solutions to the problem of the nation's uninsured.

By Susan J. Landers, AMNews staff. April 3, 2000.

Washington -- The plight of the nation's 44 million uninsured people has not escaped the attention of lawmakers, presidential candidates or President Clinton.

No one is suggesting a vast overhaul of the health care system -- the memory of Clinton's failure to carry through on his massive reform effort is still fresh -- but incremental changes are being proposed.

Although there is wide recognition of the problem, there is no consensus on a solution, said Robert Blendon, PhD, professor at Harvard's School of Public Health. For that reason, he doubts that any legislative steps will be taken this year that will greatly reduce the number of uninsured people.

Most pundits also predict that election-year politicking will preclude action until next year. But the current proposals provide a snapshot of what lawmakers envision for health care reform and serve as a blueprint for the future.

The suggestions broached most frequently include changes to the federal tax code to make insurance more affordable to low- and moderate-income people and expansion of Medicaid and the State Children's Health Insurance Program, or SCHIP.

The tax proposals are intended to extend tax benefits currently available only to workers through their employer-sponsored health plans to those who are not offered health insurance as an employment benefit.

Employer-based insurance is not counted as taxable income for workers and is fully deductible for employers. By contrast, individuals buying insurance on their own can deduct insurance costs only if they itemize their deductions and their total medical expenses exceed 7.5% of their adjusted gross income (a deduction taken by only about 4% of taxpayers).

More than 70% of uninsured workers, and consequently their families, are not offered job-based health coverage, according to the Kaiser Family Foundation.

Tax subsidies for health insurance range from tax deductions for the purchase of health insurance to tax credits targeted to a particular population and set at a specific dollar amount.

Tax credits are by far the most popular approach in Congress. Bills have been introduced by legislators across the political spectrum: from Rep. Dick Armey (R, Texas) and Senate Finance Committee Chair William Roth (R, Del.) on the right to Reps. Pete Stark (D, Calif.) and Jim McDermott, MD (D, Wash.), on the left.

The credits proposed range in generosity from $500 to $1,200 for individuals and $1,000 to $3,600 for families.

Tax credits also figure in President Clinton's plan to reduce the number of the uninsured and in a health proposal Vice President Al Gore has taken on the campaign trail.

Tax credits can be either refundable or nonrefundable. A nonrefundable credit simply lowers the amount of tax owed, while a refundable credit is paid to an individual even if he or she owes no taxes.

Will tax credits work?

Just how well tax subsidies would work toward extending health insurance to those now without coverage remains in question.

While the popularity of tax credits has "exploded," even the best-designed tax credit would not greatly reduce the number of uninsured people and would come with a high price tag, said Larry Levitt, director of the Kaiser Family Foundation's Health Care Marketplace Project.

Only one-third of the 44 million uninsured people in the country likely would gain coverage under even a generous tax credit plan of $1,000 for individuals and $2,000 for families, according to Jonathan Gruber, PhD, professor of economics at the Massachusetts Institute of Technology and a co-author with Levitt of a study on tax subsidies. The cost could be almost $40 billion per year.

But if a tax credit plan is pursued by policymakers, said Dr. Gruber, a refundable tax credit would prove the most effective. About 90% of uninsured people earn such low wages that they owe little or nothing in federal taxes, he said.

Economist Paul Fronstin, PhD, of the Employee Benefit Research Institute, is also pessimistic about the benefits of tax credits. Tax breaks must be much more generous than those now being proposed to provide much help to families currently facing premiums of about $5,000 per year, he said.

A tax credit could have an impact no one wants, Dr. Fronstin warned. Employers might say, "Hey, my employees can get the same tax break on their own as they get when they buy insurance through me, so I don't have to provide insurance anymore."

But Roberto G. Deposada, executive director of the Hispanic Business Roundtable, said a tax credit of $1,000 or $2,000 would, in many instances, be enough to allow people to purchase insurance. He also suggested that businesses might offer to contribute additional funds to be used for coverage.

Most observers believe that tax subsidies can play a role in reducing the number of uninsured people but they can't do it all.

Tax credit legislation now being crafted by a bipartisan group of lawmakers also will include a component designed to help shore up the safety net now provided by community health centers and rural health clinics that provide much uncompensated care for uninsured people.

Existing resources tapped

The large number of children without health insurance prompted Congress to expand Medicaid eligibility in the late 1980s and to devise SCHIP in 1997. SCHIP provides insurance for children in families with incomes too low to afford private coverage but too high for Medicaid.

Several proposals, including one from the Clinton administration, would further expand those joint state-federal efforts to sweep in a large segment of the 11 million uninsured children and their parents.

Clinton proposed extending SCHIP benefits to families of eligible children and accelerating the enrollment of children in SCHIP and Medicaid.

Gore included a similar approach in his campaign health proposal. For example, he recommends expanding eligibility for SCHIP to children whose families earn up to 250% of the poverty level, or about $41,000 a year for a family of four. Eligibility for the 3-year-old program varies by state from 100% to 200% of poverty.

Although states have stepped up efforts to enroll children and poor people in Medicaid and SCHIP, a recent study by the Kaiser Family Foundation found that 4.7 million Medicaid-eligible children remain uninsured.

Standing in the way of enrollment is a complex and burdensome sign-up procedure, the study states. Medicaid's traditional ties with the welfare program, although recently severed, also have caused some parents to shun enrollment in that program because of a perceived stigma. Clinton and Gore have proposed simplifying enrollment forms and expanding the number of enrollment sites.

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