What Happened in 2002

Last year, President Bush allocated $89 billion in his budget to allow uninsured Americans a tax credit for the purchase of health care coverage. Members of Congress introduced several legislative proposals offering health care tax credits to uninsured individuals and families, but no action was taken.

Two smaller health care tax credit initiatives did receive consideration in the 107th Congress. During debate on an economic stimulus package, the House of Representatives twice passed proposals that included health care tax credits for displaced workers who had lost their jobs. The Senate, however, chose not to act on these proposals.

Finally, health care tax credits were included in the Trade Adjustment Assistance (TAA) package to help eligible workers who had lost their jobs in part from expanded international trade, and certain others, to obtain private health care coverage while unemployed. Both the Senate and the House of Representatives passed this initiative, and it was signed into law (P.L. 107-210).

What to Do in 2003

Members of Congress should help the millions of uninsured individuals and families secure private health care coverage by supporting the enactment of individual health care tax credits. Specifically, they should:

• Give uninsured individuals and families a health care tax credit for the purchase of private health insurance. Designed to target lower-income uninsured families, a refundable, advanceable, and assignable individual health care tax credit would give uninsured Americans direct financial assistance with their monthly health insurance premiums, making them more affordable. A refundable credit would ensure that even uninsured people who owe no taxes are eligible for assistance. An advanceable credit would ensure that the uninsured receive the credit when premium payments are due, and not require them to wait until the end of the tax year for reimbursement. An assignable credit would allow the uninsured to have their credit sent directly to an insurer of choice, reducing burdensome accounting paperwork and leaving them with only the remaining premium balance, if any.

As noted above, the overwhelming majority of uninsured Americans are part of working households. For a variety of reasons, many of these workers are unable to secure coverage through their own employers. An individual health care tax credit would give such workers a tax incentive to find coverage elsewhere.

The ideal way to address the problem of the uninsured is through a comprehensive policy initiative. If the President and Members of the 108th Congress are unable to accomplish this objective, targeting key categories within the uninsured population would be an effective way to build on the efforts of the 107th Congress.

• Provide a health care tax credit to unemployed workers who have lost their jobs and health care coverage. Since TAA workers are now eligible for a health care tax credit during their unemployment period, it seems only fair that other unemployed workers who lose their jobs and health insurance also should be able to receive assistance to protect them from lapses in coverage. An individual health care tax credit could easily be administered and distributed through unemployment compensation offices, which provide workers who have lost their jobs with other unemployment compensation benefits, and should be applicable to a full range of private coverage options from which the unemployed worker would choose.
• Mainstream low-income persons on Medicaid into private health insurance coverage. Instead of perpetuating a lifelong dependency on public health care coverage that promises more than it can deliver, Medicaid should be reformed, as the federal welfare system of which it is a part has been. Just as individuals under welfare reform are given incentives to work and move from welfare into the mainstream economy, the Administration and Congress should create opportunities for persons to move from Medicaid into the private health care coverage enjoyed by an overwhelming majority of Americans. Giving premium assistance for private coverage would enable individuals and families to secure health insurance of choice and establish greater continuity of care and coverage regardless of income status.
• Remove regulatory restrictions on medical savings accounts (MSAs), flexible spending accounts (FSAs), and health reimbursement accounts (HRAs). Individuals and families should be encouraged to save for their health care expenses. The Administration and Congress should allow greater access to MSAs by eliminating design restrictions. They should allow workers to carry over unused FSA dollars from year to year and take this money with them when they leave their job. Finally, they should give workers with HRAs ownership of their accounts. These changes would enable individuals to control their own health care expenditures and access funds for medical expenses regardless of their work status.

Nina Owcharenko is Policy Analyst for Health Care at The Heritage Foundation.

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