About 40 million Americans – 9.8 million of them children – don't have health insurance.
Among those who do have private health insurance, about 90% get it through an employer. The employer deducts the cost as a business expense, and the premium is not considered taxable income, so the employee gets a tax subsidy – untaxed "income" in the form of health care.
Some 8 million self-employed people get a partial tax break, but another 8 million or so who buy their own health insurance have to pay for it with money left after taxes.
So, in the interest of fairness and increasing the number of insured, why not offer a tax credit to every uninsured person who buys health insurance?
That's an idea my colleagues at the National Center for Policy Analysis have come up with as a way to provide health coverage for all 40 million people without it. It makes a lot more sense than President Clinton's proposal to insure fewer than 5 million of the uninsured children in this country. What about the other 5 million or so uninsured children? For that matter, what about those 30 million adults who would still be without coverage?
The average tax subsidy for employer-provided health insurance is about $500 per year per person covered. Under the NCPA proposal, every uninsured person would be offered a tax credit of up to $500 for the cost of buying health insurance. Every uninsured person would be eligible for the credit; even those who owe no taxes could file a tax return and get a refund.
For those who still didn't buy insurance, the $500 would be sent to their state or local community to help fund a safety net for indigent health care.
Most of the money to pay for insuring the children could come from two programs already in the budget: the Earned Income Tax Credit (EITC) and the proposed $500 per child tax credit. Receiving the EITC payments and child tax credits could be made contingent on proof of insurance.
Under the EITC program, about 17.2 million low-income workers get cash refunds when they file their federal income tax returns, regardless of whether they have paid any taxes. These refunds can be as much as $3,556 per family. About two-thirds of EITC families already have health insurance, and if the current EITC payment they receive is less than $500 per family member, they would gain under the proposal. The remaining third would need to buy health insurance to get their EITC payment. EITC families with uninsured children would have a choice of getting insurance or seeing $500 per child go to the safety net fund.
The proposed $500 child tax credit would go mostly to middle-income families, about 90% of whom are already insured. The uninsured would either have to buy insurance or see their $500 per child go to the safety net fund.
For uninsured adults, without young children, the tax credit would have to come out of general funds. However, the federal government already spends billions of dollars annually to help provide care to the indigent. Much of that money would no longer be needed once the health care safety net contributions commenced.
The result of this plan would be that every American would have a better opportunity to obtain health care coverage, either through the government, private insurance or through the safety net set up with the diverted credits.
The need for universal coverage has become more important because in the past, hospitals and doctors could overcharge some patients to make up for the reduced-cost or free care given to others. Today the health care marketplace has become so competitive that hospitals and doctors are much less able to shift costs.
The president's plan to insure half of the uninsured children may be a relatively low-cost way to make some political capital. But the system described here – one of rewards for those who become insured and a mechanism to cover those who don't – is a substantive approach that could truly provide universal health care for Americans.