May 6, 1999 | Lecture on Health Care
Representative Jim McDermott: We are here today because we are stymied by a health care paradox. Our economy is booming. Unfortunately, parallel to this economic growth is the growing number of uninsured. There are now almost 44 million uninsured people in this country--an increase of more than 5 million since 1993.
Representative Rogan and I came today specifically to talk about our proposal to help stop the increase by targeting a 30 percent health insurance tax credit to the working uninsured. To qualify for our partially refundable credit, taxpayers (1) must not currently be offered health insurance through their employer and (2) must have either an individual income below $30,000 per year or a joint income of less than $50,000 per year. To ease administration, these income limits have been designed to match those of traditional individual retirement accounts (IRAs).
When the General Accounting Office evaluated a similar proposal last June, it found that almost 36 million individuals without employer-based coverage--roughly 75 percent of the uninsured--would be eligible for the full credit on the basis of their adjusted gross income. Additionally, under our proposal, the self-employed would have the opportunity to choose between our proposed credit or the 60 percent deduction allowed by current law.
Not only would this proposal provide a tax benefit for those who need it most; it also would encourage health care consumers to be cost-conscious when choosing their health insurance plans so that they could maximize the value of the credit.
Who are the uninsured?
What has been the impact of the tax code on health insurance in this country?
What can the 106th Congress realistically do to address this important social policy issue?
First, who are the uninsured? Contrary to what many people might think, roughly 75 percent of the uninsured work full-time or part-time. The remaining 25 percent are split evenly between those who are unemployed and those who are not in the labor force.
There is not enough time today to talk at length about the demographics of the working uninsured. If we did, we would find that most of the working uninsured are age 18-34, that a disproportionate number of them are minority, that working poor parents are twice as likely to be uninsured as poor parents who are unemployed, and that the highest rate of uninsurance is found among pre-seniors between the ages of 62 and 64.
Second, what has been the effect of the tax code on health insurance in this country? Since World War II, America has relied on employers to provide health insurance and has rewarded them accordingly through the tax code. But a growing number of workers lack the employer-based insurance that policymakers once took for granted.
Let me give a practical example of how the working uninsured fall through the cracks of our current employer-based system. If you make $6.50 an hour, your annual after-tax income is $11,500. If you tried to purchase an average health insurance plan, it would cost you about $3,000. It is obvious that if the working poor are going to get health insurance, we are going to have to come up with a way to help them.
Third, and most important, how do we in the 106th Congress address the issue of the working uninsured? As you all know, I am a strong believer in universal health insurance, and that the most efficient way of providing it is through a single-payer financing system. Such a system would lift the prohibitive burden of health insurance administration from employers and replace it with a public premium that shares responsibility throughout society.
But if there is a way for us to guarantee universal coverage without single-payer--through a plan based on tax credits, Clinton-care, or Medicare for all--I am willing to look at the proposal, as long as the plan guarantees access to quality care that is affordable. My bottom line is quality care at an affordable price.
Unfortunately, just because something is efficient--such as a single-payer system--does not always mean that it will pass anytime soon. The reality is that the political climate to have an honest debate about universal coverage was destroyed by partisan bickering in 1994.
As a policymaker, the next question for me then becomes: What can we do in the near term to help folks who need health insurance today? The tax code is a good place to look. After all, it is the foundation of our employer-based health insurance system.
For a number of years, this issue for me has been about simple tax fairness. As many may know, Congress recently made matters worse by passing legislation to allow the self-employed to deduct 100 percent of the cost of health insurance from their taxes. Since 1995, I have attempted to equalize the tax treatment of health insurance benefits by offering amendments on the House floor and in the Ways and Means Committee, and by introducing H.R. 539 in the last Congress.
My rallying cry--which I am glad to see is starting to take hold--has been the rhetorical question: Why should a doctor or attorney who is self-employed be able to deduct a portion of the cost of his or her health insurance while a secretary who must buy his or her own health insurance policy is not able to deduct one cent of the cost? As a simple matter of fairness, this inequity in the tax code needs to be fixed.
According to the Virginia-based Lewin Group, the average federal health benefits tax expenditure is $918 per family. That sounds pretty good until you realize that a family whose income is below $40,000 receives an average of $766 in tax benefits, a $30,000 family receives just $500 in tax subsidies--and the numbers get more depressing going down the income scale.
The bulk of the tax subsidy is going to those who need it the least. If you make $100,000 or more, the tax code subsidizes your health insurance each year by more than $2,000. So it seems to me that if Congress wanted to address the issue of tax fairness and assist a group of people who are in the greatest need of health insurance, it would look at our proposal for a 30 percent credit.
Our proposal is a reasonable and prudent approach to helping people who have been forgotten by the system. We are initiating the debate with a less-is-more approach. Our legislation will be less than six pages long.
I am hopeful that the sudden interest in tax code equalization--through discussions like this one today--will allow for thoughtful discussions and critiques of the wide range of proposals that will be offered this year.
In particular, as policymakers put forward proposals, they need to consider what the "take up rate" will be (will people use the credit if they are eligible?), how it will affect existing employer health care contributions, and how much the proposal will cost. For years, I have been trying to get the Joint Committee on Taxation to score my proposal. Maybe this year they actually will get it scored.
I don't want to leave you with the impression that our limited proposal is the ultimate answer. I view it as a first step toward finding a solution for the uninsured. I am proud of the fact that it is a moderate proposal, because there are so many uncertainties about how it would work.
For example, we completely avoid the issue of market reforms because going down that route creates more divisions among political parties than can be realistically addressed in this Congress. I am hopeful that gently affecting the individual marketplace will induce state legislatures to take steps to rationalize their individual markets, and that Congress can learn from both their successes and mistakes.
Conversely, more costly proposals that hope to influence the marketplace dramatically must include meaningful market reforms. Otherwise, such proposals will just be throwing large amounts of federal tax expenditures at an individual marketplace that is already overpriced. But there is no consensus around market reforms to be found.
I would also be especially cautious about more ambitious tax credit proposals because they run into serious financing problems. How do you pay for the credits without running a deficit? Even in this era of expected budget surpluses, a hefty price tag simply is prohibitive given our other national policy priorities.
More important, current comprehensive tax credit proposals may not be such a good deal for either the insured or the uninsured. If they appear to be too generous, employers will drop coverage and allow for their existing costs to be replaced with an inadequate government voucher--a voucher that would not come close to equaling their existing coverage. Letting employers off the hook while increasing government and beneficiary costs would make the problem worse.
I am the first one to say that our credit should not replace the current system. If it did, it would be inadequate. That is not to say, however, that most of us in this room would not like to see the current system totally overhauled.
I view our proposal as a targeted effort to stop the current health insurance hemorrhaging and induce some additional people to purchase health insurance before they get sick, as an achievable goal in a very divided Congress, and as a stimulant of the necessary discussion we need to have about how this country can create an efficient means of providing universal health care coverage.
Ways and Means Committee Chairman Bill Archer has said he would like to mark up tax legislation later this spring. Jim and I already have written him and Bill Thomas, who chairs the Health Subcommittee, asking them to look closely at our proposal for its immediate benefits. We have also asked the White House to look at our proposal, and I hope that the Clinton Administration will once again show leadership by joining us in attempting to tackle this difficult issue of the uninsured.
By bringing people together, I am confident that we can build momentum within the Congress to generate bipartisan support behind proposals that begin to address the needs of the uninsured. Passage of our credit would be a first step toward enlightening that discussion.
The Honorable Jim McDermott, a Democrat, represents the 7th District of Washington State in the U.S. House of Representatives.
The subject of this lecture is "Can Liberals and Conservatives Agree on Health Care Reform?" The initial response one might be tempted to make to such a question is that they cannot. That is unfortunate, because liberals and conservatives do share some goals for health care policy.
We all want quality health care.
We all want affordable care.
We all want to remove the obstacles people face in obtaining health insurance.
We are suggesting a 30 percent partially refundable tax credit for the purchase of health insurance. For example, a single person purchasing a low-priced policy with an annual premium of $667 would be eligible for an approximately $200 tax credit. This will not solve the problem of America's uninsured, but it will expand the number of insured among those whose needs are the greatest.
Further, it will rectify the current tax code's inequitable treatment of workers and health insurance benefits. Currently, workers with employer-sponsored health insurance coverage enjoy about a 30 percent tax break. Workers whose employers do not offer health benefits do not get that break when they buy insurance on their own. Our bill levels the playing field by offering that same tax break to workers whose employer does not provide coverage.
These workers have a variety of faces. Some are minorities working in industries that traditionally have not provided health benefits. Some are entrepreneurs working for start-up companies with little money for salaries, let alone benefits.
This tax credit legislation provides a starting point for liberals and conservatives, state governments, insurance companies, and others to begin addressing health policy issues relating to uninsured Americans.
Our bill will not solve the uninsured problem, but it is an important step that liberals and conservatives can take together. State governments could go a step further to facilitate the creation of more affordable health insurance policies. Insurance companies, with the attraction of more potential customers and an improved risk pool, could offer innovative health insurance products. The more steps taken, the greater the number of insured people.
The Honorable James Rogan, a Republican, represents the 27th District of California in the U.S. House of Representatives.