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The Honorable Don Nickles Re: Credits versus deductions for the purchase of health
insurance
Dear Senator Nickles:
We would like to speak to the approach taken as part of the Patients'
Bill of Rights package of legislation now before Congress to help the
uninsured obtain health insurance. We commend you and your colleagues
for recognizing the importance of addressing this serious and growing
problem and for your efforts to seek solutions.
We commend you for recognizing the importance of addressing the tax
treatment of health insurance as a means of expanding access to health
coverage.
However, we strongly support tax credits instead of tax
deductions, for reasons explained below.
Signatories to this letter are participants in the Health Policy
Consensus Group, a task force of leading health care economists and
analysts, including researchers at the major market-oriented think
tanks. Members have been working together to provide policy advice on
free-market health reform since 1993.1 As we
explain in the enclosed Vision Statement, we believe that reforming the
tax treatment of health insurance is essential to creating a more
efficient and equitable market for medical services and health insurance
in the United States.
We believe that, instead of trying to put more regulation on a system
already skewed by lack of choice for insurance, Americans should have
incentives to purchase their own health insurance. The best "Patients'
Bill of Rights" is one that helps them obtain insurance and gives them
the power to choose their health plan -- and fire it, if necessary. This
will be far more effective than any regulation that is imposed through a
Patients' Bill of Rights, which will also raise the cost of insurance --
the question is only by how much -- and make it more difficult for
Americans to get needed insurance.
For the great majority of uninsured Americans, the obstacle to
obtaining health insurance is cost. As a result, we would like to focus
on the important debate over tax credits versus deductions to help the
uninsured obtain private health insurance.
A number of initiatives are under consideration that would provide
incentives through tax deductions rather than tax credits. We would like
to explain why we strongly support the approach of using tax credits
rather than tax deductions.
Because of the progressive rate structure of the U.S. income tax
system, deductions favor middle- and upper-income individuals and
families who are most likely already to have health insurance, and they
provide little or no help to those at the lower end of the income scale.
Tax deductions, either above or below the line, will be of no help to
families with incomes under $25,000, who are the most likely to be
uninsured. Due to the combined effects of the standard deduction,
personal exemptions, and child tax credit, these families often pay no
federal income taxes while paying thousands of dollars in payroll taxes.
An income tax deduction does nothing to ease the burden of these
regressive taxes.
For individuals and families who actually do pay income taxes, even
if a 100 percent deduction were available immediately, it still would
mean a savings of only 15 percent off the cost of health insurance for
those in the lowest tax brackets, far too little to be of help.
The Health Policy Consensus Group emphasizes that the nation's tax
policies pertaining to health insurance are regressive, inefficient,
unfair, and increase the cost of health care by encouraging wasteful
expenditures. We believe that the money spent on deductions, either
above or below the line, should be spent instead on a tax credit to give
families meaningful help in purchasing private health insurance.
More than 80 percent of the uninsured are working Americans or their
dependents; they either can't afford to purchase health coverage on
their own with after-tax dollars or they can't afford to pay their share
of the premium costs for health insurance their employers may offer. A
deduction, even if above the line, will provide virtually no help to
most of these families.
The enclosed Vision Statement describes the broader need to address
the unfairness of the way the current tax system treats health care
expenditures.
Tax credits would be more equitable, and they could be made
refundable and targeted to those who are most likely to be uninsured.
Further, tax credits toward the purchase of private health insurance
would empower consumers to shape the private health insurance market
through competition. Individually-based tax incentives also would reduce
problems of "job lock" by increasing portability and allowing workers to
continue their coverage when changing jobs, taking early retirement, or
starting new businesses. Finally, consumers would be able to select the
private health care arrangements that best suit their needs and those of
their families.
In addition to tax credits for the uninsured, we support other
provisions to move toward consumer-oriented health reform, including 1)
allowing employees with Flexible Spending Accounts the freedom to
rollover unspent funds at the end of the year; 2) extending Medical
Savings Accounts and relaxing the rules governing them; and 3) providing
incentives for companies to consider offering employees a defined
contribution to give them greater flexibility and control in selecting
their health insurance policies.
We are united around the principle that we should do no more harm to
the health care system. As you consider pending measures, we strongly
encourage you to keep this fundamental principle of the medical
profession as a prime consideration. Any measures that would increase
costs will result in millions more Americans losing their health
coverage.
We invite your questions and would be very happy to meet with you to
discuss the ideas discussed in this letter and other ideas you may want
to explore.
Sincerely,
Grace-Marie Arnett Naomi Lopez-Bauman Bradley Belt Julie Chan DeWayne Davis Stephen Entin James Frogue John Goodman, Ph.D. Robert Helms, Ph.D John Hoff Jeanie Hudson David Kendall Marty McGeein Robert Moffit, Ph.D. Lisa Oliphant Leslie Paige Mark Pauly, Ph.D. Greg Scandlen Jack Strayer Michael Tanner Kevin Vigilante, M.D. Elizabeth Wright For more information, contact:
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