March 7, 2002

March 7, 2002 | Commentary on Health Care

Health-Care Tax Credits: A Shot in the Arm

When it comes to helping the millions of Americans who lack health insurance, federal lawmakers agree on this much: Something should be done. Beyond that, the policy prescriptions being debated have about as much in common as laser surgery and a box of leeches.

Consider what Senate Majority Leader Thomas Daschle wants to do. He's introduced legislation designed to give health coverage to workers who have seen their jobs move overseas. His "Trade Adjustment for Workers, Farmers, Communities and Firms Act" would give laid-off workers a federal subsidy so they could continue getting coverage through their former employer.

At first glance, extending so-called "COBRA" coverage sounds like a decent solution. COBRA can be awfully expensive, since it requires now-unemployed workers to pay the full cost of their health-care premium, as well as a small administrative fee. Under Sen. Daschle's bill, the federal government would bear at least 50 percent of this cost, greatly lightening a substantial financial burden. What's not to like?

Plenty. For one thing, the Daschle proposal would help far too few uninsured workers. That's partly because it's restricted to certain types of jobs, but also because of the fact that not all workers qualify for COBRA. In fact, only 57 percent qualify. Those left out include people who worked for small-business employers (COBRA applies to employers with 20 or more workers), those whose employers didn't offer coverage, and those who declined their employer's coverage because it was too expensive or otherwise didn't suit their needs.

Low-income workers would get the least amount of help; 60 percent of them don't qualify for COBRA. The assistance in the Daschle bill would wind up going to help wealthier families maintain private coverage and leave many struggling families with nothing.

Second, even with a subsidy, many workers still would find their employer's health plan too expensive. Employers tend to over-insure their employees in an effort to meet the various health care needs of their diverse workforce. This makes the cost of employer-sponsored coverage quite expensive, with an average cost reaching more than $7,000 a family per year. Requiring families to pay even a fraction of an expensive plan while they face a drastic reduction in income makes no financial sense.

Third, the COBRA-based approach keeps displaced workers shackled to coverage controlled by the employer who just laid them off. And if that employer offered a self-insured plan and subsequently goes out of business (certainly a possibility for a company in lay-off mode), the health coverage could simply disappear, with or without COBRA.

To fill in these gaps, some members of Congress propose using Medicaid as "fall back" coverage for displaced workers unable to get or afford COBRA. But this could dramatically swell Medicaid's rolls at a time when the program is ailing: States have begun to cut back benefits and reimbursements, greatly limiting access to quality care. Forcing millions of unemployed Americans into this substandard program will necessitate even more cost-cutting measures.

Here's a better remedy: Take the money that would have gone to extending COBRA coverage for some displaced workers and give it to all unemployed workers to buy the health plan of their choice. This would enable displaced workers to choose the health coverage that best fits their personal, medical and financial situations.

At least, members of the House of Representatives think so. More than once, they've passed an economic stimulus bill which would have done just that. It proposed giving displaced workers a premium subsidy in the form of a tax credit that would go toward the cost of the health care plan of their choice. But each time, tax-credit opponents in the Senate -- led by Sen. Daschle -- have refused to allow it to even come up for a vote.

Meanwhile, millions of unemployed families -- not just those designated in Sen. Daschle's bill -- remain in desperate need of assistance. Hundreds of thousands of workers have been laid off just in the past year. Should another economic slowdown occur, thousands more are just a pink slip away from losing not only their income but their health coverage.

It's time to stop playing politics with the health care of unemployed workers and help these families buy coverage of their own choosing. That's the healthiest solution.

Nina Owcharenko is a Health Care policy analyst at The Heritage Foundation.

About the Author

Nina Owcharenko Director, Center for Health Policy Studies and Preston A. Wells, Jr. Fellow
Center for Health Policy Studies

Related Issues: Health Care

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