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Tax Credits: A Cure for Health Care

Fort Lauderdale Sun-Sentinel 
June 20, 1999 

By Stacey Singer, Health Writer 



Eight hours a day, Darda Baskin stoops over a low counter, folding other people's clothes in the back of a Fort Lauderdale laundry. 

At 33, Baskin earns just above the minimum wage and receives no health benefits. It's been four years since Baskin saw a doctor. "It costs too much," Baskin said, pulling a load from a dryer. "They just keep billing you and billing you, but if you don't have it, you can't pay. You can't get blood from a turnip."

After health-care reform efforts failed spectacularly in 1994, Washington policy makers have avoided the topic like some sort of infectious disease. Meanwhile, the ranks of people like Baskin have swelled. From 1987 to 1997, the number of uninsured people rose from 31.8 million to 43.1 million. Most of them -- like Baskin -- work full time. 

Today, one in six Americans, and one in five Floridians, has no health insurance. 

If the strong economy falters, policy analysts warn, the ranks of the uninsured will quickly rise to one in four Americans, which could send overall health-care costs soaring. 

With another federal election cycle looming, Congress and candidates have an incentive to take a fresh look at health-care reform. The issue promises to become a flash point in the campaigns, as Republicans accuse the Clinton administration of a failure of leadership in the 1994 health-care debates. 

During that round, discussion centered on whether the country should have a national health system, like Great Britain or Canada. 

Today, with such radical proposals in political purgatory, attention has turned to something more palatable to both the left and right: refundable tax credits. 

The concept has attracted a variety of strange bedfellows, including liberal Rep. Pete Stark, D-Calif., and conservative House Speaker Dick Armey, R-Ill. In the emerging debate, many conservatives sound like latter-day Robin Hoods, urging that Congress take tax benefits from the rich and give them to the poor. 

In a hearing before the House Ways and Means Committee on Wednesday, John Goodman, a policy adviser to presidential candidate and Texas Gov. George W. Bush, testified that the cause of the insurance crisis -- and ultimately its cure -- lies with the existing tax code. 

"The current system of tax subsidies gives the most relief to people who least need encouragement," said Goodman, who is director of the National Center for Policy Analysis in Dallas. 

Under current tax policy, the money employers spend on their employees' health insurance is not counted as income on the employees' tax statements. That means that higher-wage earners, who are in higher tax brackets, receive greater tax relief. 

The Heritage Foundation's Stuart Butler, also an advocate of tax credits, said that the average tax break for employer-insured people today is $1,000. But under the current tax structure, people earning more than $100,000 receive about $2,500 in benefits, while people earning about $14,000 receive just $300. Yet they both must pay the same for health insurance. 

"The system isn't working," Butler said. 

Many people agree. About 10 tax credit plans are circulating around Capitol Hill. Butler and Goodman have each written one. So have the American Medical Association, the Health Insurance Association of America, the American College of Physicians, Blue Cross/Blue Shield, and at least four Congressional representatives. 

All of the plans have one common element: They would try to redistribute part or all of the estimated $100 billion in health-related tax relief now going to employers and people who receive employer-sponsored health benefits. 

The plans designed by Goodman and Butler would make health-care tax credits available only to people ineligible for employer-based coverage. A broader plan designed by the American Medical Association would shift the tax credit to all individuals purchasing health insurance. Both the AMA's plan and one introduced by Rep. James McDermott, D-Washington, would graduate the amount of the tax credit according to income. 

Depending on the version, consumers would receive a credit of between $250 and $3,600 to go toward health insurance. 

The problem, Butler acknowledged, is that many employer-sponsored health plans put the cost of their benefit at between $5,000 and $7,500 per family per year. 

If states or employers do not make up the difference, individual consumers might have to, although Butler thinks that many firms overinsure their workers. 

Consumers Union, publisher of Consumer Reports, urged caution: If not designed carefully, these new proposals could create an incentive for employers to stop offering health benefits, and leave middle-class families paying much more. 

Worse, people with existing medical conditions could be left out completely if there is a wholesale shift from employer-sponsored health plans to individually purchased plans. Therefore, insurance reform would have to take place at the same time. 

Some have suggested creating state-managed high-risk pools, much like Florida's windstorm insurance pool. 

Butler thinks the way out of the crisis is not to force individuals to purchase their own insurance directly, but to create financial incentives for groups other than employers -- such as synagogues, churches, alumni associations or other community groups -- to organize health plans. That would allow people to stay with a health plan even if they changed jobs. 

It's a solution the Greater Fort Lauderdale Chamber of Commerce endorses. For the past five years, the chamber has offered access to its health plan as part of a membership benefit. 

More than 400 small and medium-sized companies insure their employees through the Chamber plan. 

Ron Ploutz, owner of Animal House Pet Supplies in Fort Lauderdale, is one of them. He pays about $250 a month per employee.

"I just bought the store in October, and we needed something for two of our employees here," Ploutz said "It works out pretty well." 

The problem is, if the employee changes jobs, their insurance does not move with them. Pinning health-related benefits to individuals instead of employers could change that, making the individual the insurance customer, tax-credit advocates argue. 

The debate is still in its early stages, Goodman said. What's most remarkable, though, is such a wide ideological spectrum is turning toward the same solutions. 

"It's clear to me that everyone agrees that a tax credit plan is the way to go," he said. "There are no other proposals." 

Copyright 1999 Sun-Sentinel Company

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