Health care tax
credits can make health insurance coverage affordable for millions
of working Americans.
In 2002, 43.6
million Americans went without health insurance at some point. Most were uninsured for
a short period: 44.1 percent for less than four months and an
additional 19.9 percent for between five and 8 months. The shortness of the
coverage gap can be explained by any number of reasons, including
the time spent between jobs after having lost work and the
probationary period, after which coverage begins, when switching
jobs. However, that still leaves a significant number of Americans
without health insurance for long periods of time.
been struggling for years to find ways to help those without
insurance obtain coverage. President George W. Bush has proposed a
tax credit, based on income, of
up to $1,000 for an individual and $3,000 for a family. There has
been some criticism that this amount would be too little to help
low-income individuals and families purchase coverage, but new data
from eHealthinsurance.com show the cost of individual plans to be
well within reach of those numbers.
Congress and the
Administration should aggressively promote health care tax credits,
and thus help millions of Americans who do not, or cannot, get
health insurance through their places of work.
Current Tax Policy
There is currently
a tax advantage for the purchase of health insurance for those who
get that insurance through their employer, but this favorable tax
treatment is not available for people who purchase health insurance
on their own in the individual market. Workers with
employer-provided coverage have their contribution toward their
premiums taken out of their compensation pre-tax and, therefore,
are not taxed on that income; those in the individual market do not
have that option. In 2004 there will be an estimated $188.5 billion
tax break for individuals and families with employer-provided
health insurance, with 26.7 percent of that tax benefit going to
families with incomes of $100,000 or more-roughly 14 percent of the
Families with lower incomes see less of a benefit. (See )
While the average
family receives a tax break for health benefits of $1,482,
lower-income families-those with incomes of less than $30,000-get a
break of only $725, with that amount being less the lower their
treatment for health insurance should not be based on whether one
has access to employment-based health insurance. Congress can end
this inequitable policy. A tax credit would be the most efficient
and effective way to accomplish this goal, and Congress could
target the credits to individuals and families with the greatest
needs including those who work in small businesses. With a change
in congressional policy, health insurance in the individual market
would be within reach for millions of uninsured citizens.
Premium Costs in the
In the April 2004
study by eHealthinsurance.com, researchers analyzed the more than
62,000 plans the company sold to individuals and families in 42
states and the District of Columbia since August 2003. What they
found was that the average annual premium for an individual was
$1,812, or about $151 per month.
varied widely by state, from a high of $4,044 in New Jersey to a
low of $1,188 in Iowa and Wyoming, and the average age of the
consumer was 33 (See Table 1).
The study also
found the average cost of a family plan (average of 2.9 family
members) to be $288 per month, or $3,456 per year.
Type of Coverage
Seventy-five percent of
individuals and 79 percent of families purchased Preferred Provider
Organization (PPO) plans, while 14 percent of individuals and 9
percent of families purchased Health Maintenance Organization (HMO)
Of the plans purchased, "94% of policies purchased by individuals
and 89% of policies purchased by families can be considered
'comprehensive' in coverage, where comprehensiveness is defined to
include: Inpatient, Outpatient, Lab and Test benefits. 76% of these
plans also include Prescription Drug benefits."
Ehealthinsurance.com reports that
the vast majority of the plans purchased through its service had
deductibles of $1,500 or less. For individuals, 71.2 percent of
plans purchased had deductibles of $1,500 or less, while that
number was 60.8 percent for families.
Fully three-quarters (75 percent)
of purchasers bought plans with co-payments of $20 or less. For individuals the
number was 74.9 percent, and for families it was 75.5 percent.
Preliminary Data on Health Savings Accounts
Health Savings Accounts (HSA) were
signed into law on December 8, 2003, as part of the Medicare
Modernization Act of 2003 and became available for purchase on
January 1, 2004. Ehealthinsurance.com has offered HSAs since that
date and has released preliminary data on who has bought them and
how much they cost. The information, while from only a two and a
half month period, is very promising.
Given the option of an HSA, individuals and families of all sizes
have chosen to enroll in them. Of the enrollees, 38 percent were
individuals, 16 percent were individuals and their spouses, and 4
percent were individuals with one child. Families of varying
size make up the remaining 42 percent.
The ages of those
choosing to enroll in HSA-eligible plans ran the spectrum, with the
largest group being 40 to 49 years old (32.89 percent). In fact, 55.7 percent
of enrollees were over the age of 40. Enrollees between the
ages of 30 to 39 comprised another 30.26 percent of those choosing
The cost of
HSA-eligible plans varies, but the majority of enrollees (52.83
percent) pay between $51 and $100 a month. Another 23.14 percent
of enrollees pay between $101 and $200 per month, 5.65 percent pay
between $201 and $300, and 17.67 percent pay $50 or less per
meet their deductibles, 54 percent will have to pay 20 percent
coinsurance for office visits, surgery, hospitalization, Ob/Gyn,
and X-Ray/lab tests, but 44 percent have chosen plans that require
While this data is
very preliminary, it is promising. The option of an HSA is one that
appeals, as the preliminary data show, to a wide range of
individuals and families. In the future, HSAs should continue to
offer an affordable option for the uninsured.
Tax benefits have
long favored those who get health insurance through their
employers. The policies and premiums of the individual health
insurance market are often dismissed as out of reach for millions
of those who are uninsured. Based on the data, however, this is not
necessarily the case.
affordable plans are available in the individual market. These
health plans would be more prevalent and more effective with tax
credits that are refundable and advanceable for low-income
individuals, who often work in small businesses.
Congress can help
millions of working Americans through a vital change in health care
tax policy. The Bush Administration has proposed a solid first step
with a tax credit. Through refundable, advanceable tax credits, not
only would more Americans be able to afford health insurance, but
the playing field would be closer to level between those with
employer-provided coverage and those who find themselves in the
individual market. Thus, such a policy would be far more equitable
than the existing policy, which favors higher-income individuals
with employment-based coverage in large companies.
is Research Assistant in the Center for Health Policy Studies at
The Heritage Foundation.