GOVERNMENT & MEDICINE

Insurance tax credits gaining attention

The AMA's Council on Medical Service presents guidelines for a tax credit to reduce the number of uninsured Americans.

By Susan J. Landers, AMNews staff. June 12, 2000. Additional information

Washington -- The concept of using tax credits to help individuals purchase health insurance -- a policy favored by the AMA as a way to gain coverage for some of the 44 million Americans now without insurance -- is getting increased attention.

Federal lawmakers have introduced numerous tax credit bills, presidential contenders have included tax credits in proposals to expand the availability of insurance and a recent survey suggests even members of the public find tax credits attractive.

A survey by the Kaiser Family Foundation and the "NewsHour with Jim Lehrer" found that 39% of the nearly 2,000 people queried said they would favor switching to a system of health insurance in which all individuals buy their own policy with the help of tax credits or subsidies.

The Kaiser/Lehrer poll also found that 53% of those questioned said they know someone who is without health insurance and believe this lack of coverage is a serious national problem.

To help sort through the plethora of tax credit proposals, the AMA Council on Medical Service has developed a set of guiding principles, which it included in a report scheduled to be presented to delegates during this month's Annual Meeting.

"Our approach was to delineate principles that could be used to assess a number of tax credit proposals," said Eugene Ogrod, MD, chair of the Council on Medical Service. "We would hope that Congress would also pick up on the principles in drafting legislation."

The Council on Medical Service investigated the effectiveness of tax credits at reducing the number of uninsured people. Its study found that 95% of the 44 million uninsured Americans could gain coverage if an extensive program of tax credits is instituted and those eligible for Medicaid are enrolled.

A Tax Credit Simulation Project run by the AMA's Center for Health Policy Research examined five scenarios involving the amount of the credit. It found that by providing a tax credit of $1,800 to $2,000 for an individual and $3,600 to $4,000 for a family, approximately 25 million uninsured people could gain coverage at a cost to the federal government of $40 billion to $65 billion.

That increase, combined with stepped-up enrollment of Medicaid-eligible people, could produce a level of coverage comparable to "that of other industrialized countries that have achieved 'universal' coverage," says the report.

The AMA, a strong proponent of individually selected and owned health insurance, favors replacing employer-based insurance with a tax credit for individuals that is comparable to the amount spent for coverage by individuals and their employers.

Under the current tax code, 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).

The intent of the report's guiding principles is not to lock the AMA into specific parameters governing tax credits, Dr. Ogrod explained. "We thought it important not to get overly focused on methodology, but to document that there are approaches that could work and probably in the long run be affordable," he said.

Among the principles:

• Tax credits should be offered only for the purchase of health insurance to provide a strong incentive for people to buy health insurance voluntarily. The report suggests that health insurance include coverage for hospital care, surgical and medical care, and catastrophic medical expenses.
• Tax credits should be refundable to enable low-income people who owe no taxes to share in the benefit.
• The tax credit should be inversely related to income. Because the current employer-based system is not income-related, individuals with higher incomes get larger tax breaks. Although subsidies of wealthier individuals would be reduced or eliminated under the AMA-favored plan, taxes and premiums that now pay for uncompensated care to the poor would likely be lower, the report noted.
• The size of the tax credit should be large enough to ensure that health insurance is affordable for most people, which means the credit should be about $2,000 for individuals and $4,000 for families.
• The size of the tax credits should be capped to discourage the purchase of more insurance than is needed.
• The size of tax credits should vary with family size and be contingent upon each member of the family having health insurance.

Incentives over mandates

The council also will present a second report to the delegates addressing a proposal made at last December's Interim Meeting calling for all Americans to be required to have a minimum level of health insurance. It also advocated the creation of a health care safety net for the uninsured funded by the federal government through state block grants.

In its report, the council recommends an approach to universal health insurance that relies on incentives provided by tax credits to entice people to purchase coverage, rather than a requirement that they do so.

"With appropriately structured tax credits, virtually all individuals will face powerful incentives to obtain and maintain coverage," the council report says.

Safety net programs, such as Medicaid and the State Children's Health Insurance Program, already provide coverage for those unable to purchase insurance, the council also notes. AMA policy favors expanding eligibility for those programs until insurance reform is enacted.

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In a nationwide public opinion poll on the problem of the uninsured, respondents were offered two possible solutions. Their preferences were:

54% - Build on the current system of employer-based health insurance and of government coverage for the poor and unemployed.

39% - Switch to a system allowing all individuals to buy their own health insurance with the help of a tax credit or other subsidy.

Note: 4% chose neither option, 3% had no opinion.

Source: The NewsHour with Jim Lehrer/Kaiser Family Foundation National Survey on the Uninsured, 2000

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Box: The survey says

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