Tax Credits for the Uninsured

At Issue

According to the U.S. Census Bureau, more than 44 million Americans lacked health insurance coverage in 2005. Medical costs are at an overall high, and private health insurance costs for both employers and individuals have risen dramatically. NAHU believes that there is no one magic answer to the problem of the uninsured. A multi-faceted approach will be required because no one solution will fit the needs of all of our citizens. Any attempt to provide Americans with universal access to health coverage should preserve the private health insurance market. Other countries have experimented with government-run health care systems, and this has only resulted in high-cost, lower-quality, rationed care. Americans need to be able to access a competitive health insurance marketplace with a wide range of health plan choices. The public policy components that NAHU believes would be necessary to ensure that all Americans have access to affordable, privately marketed health insurance coverage include:

• The availability of advanceable and refundable federal health insurance tax credits for low-income individuals and families. This credit should be available to purchase either individual market coverage or coverage through the employer-based health insurance system.
• Expansion of access to consumer-directed health insurance alternatives, such as HSAs, FSAs, HRAs, etc.
• The development of creative ways to insure high-risk individuals, such as the use of reinsurance pools. This will ensure that coverage for the majority of individuals who are healthy remains affordable.
• The availability of a health care safety net for the lowest-income segments of our population that utilizes the private market wherever possible to provide individuals with high-quality medical options.
• The availability of continued federal funding for high-risk pools, which provide an important safety net for people with catastrophic medical conditions who do not have access to other health insurance coverage.

NAHU's Position

In looking at proposals designed to expand insurance coverage to the uninsured, NAHU feels it is important to look at and consider the many subsets among the uninsured, including the self-employed, small business employers and employees, high-risk uninsured persons with chronic illnesses, childless adults, and minority populations.

Some people are uninsured, but already eligible for public programs (25%). Others are uninsured but can well afford coverage (20%). But certainly, the majority of the uninsured (56%) fall into a third category, fulltime workers who earn too much to qualify for assistance but not enough to afford health insurance.

A recent study¹ analyzed the uninsured population and divided them into three categories:

NAHU urges Congressional action though private-market initiatives to reduce the number of uninsured Americans.

In the 110th Congress, many Members of Congress from both sides of the aisle have introduced refundable tax credit proposals to address the uninsured issue. Legislation such as Tax Equity and Affordability Act (S. 397 / H.R. 914, introduced by Senator Mel Martinez (FL) and Representative Paul Ryan (WI) respectively, would help the uninsured by allowing individual taxpayers a refundable tax credit for health insurance costs paid for the benefit oneself and one's family.

NAHU believes that the ability to use a health insurance tax credit in the employer-based insurance system as well as in the individual market is crucial, since two thirds of Americans get their health coverage through employers. Of those individuals who have the opportunity to get health coverage through their employer, almost 5 percent decline and do not obtain health insurance anywhere else. Five percent may seem like a small number to decline coverage, but it accounts for 20 percent of all the uninsured-almost 10 million Americans. And overwhelmingly the reason people give for turning down coverage is cost.

What Others Are Saying

While some groups would like to see the United States move towards a system of government-sponsored universal healthcare, a federal health tax credit is now an idea with significant bipartisan political support.

Some health credit advocates disagree about how a health credit should be structured and how large the credit should be. Some groups feel that the current tax system favors employer-sponsored health insurance coverage which is unfair to those who want to purchase their own individual coverage. As such, they have proposed tax credits that can only be used to buy individual health insurance plans.

Other groups, including NAHU, favor a refundable tax credit that can be used in both the employer-based and individual market. Another issue under debate is how people should receive their health insurance tax benefit. Many, like NAHU, support the idea of advancing a health credit monthly on behalf of eligible individuals either through their employer or insurance company to reduce the likelihood of fraud and ensure the availability of health credit funds throughout the year.

A number of bills have been proposed that would provide a direct tax credit to the employer. While NAHU would not oppose this approach (without maintenance of effort requirements), we believe making the credit directly available to employees and individuals would provide the highest impact in comparison with the other approaches.

Other health insurance tax credit advocates would rather enact a health credit where eligible individuals would receive their monies at the end of the year, when they file their tax return. Finally, the amount of the health credit varies from proposal to proposal. The challenge is balancing the amount so that it provides meaningful assistance to individuals trying purchase insurance but does not provide a disincentive for employers to offer coverage.

NAHU's Actions

NAHU's support for tax credits for the purchase of health insurance in the employer-based system is well known in Washington. In March of 2001, we were invited to give testimony before the Senate Finance Committee concerning this topic. In the ten years that NAHU has been trumpeting our health credit plan, we have also developed a number of informational materials about the proposal, including:

• The Problem of the Uninsured
• Legislative Proposals in the 109th Congress
• Information on NAHU's Employer Survey relating to tax credits
• NAHU Analysis of Federal Health Tax Credit Proposals

Additional Resources

• EBRI's Small Employer Health Insurance Survey
• Tax Credit Details from the Bush Budget (go to page 45)
• Uninsured By Choice: Update - National Center for Policy Analysis (NCPA) - October 7, 2003

Recent News

• Health Insurance Coverage in the United States: 2005
• NAHU Supports Using Health Tax Credits to Reduce Number of Uninsured Americans - NAHU Press Release - May 11, 2004
• Uninsured Task Force Report - The Senate Republican Task Force on Health Care Costs and the Uninsured - May 11, 2004.
• Solving the Uninsured Crisis - NAHU Suggests Solutions - NAHU Press Release - May 9, 2004
• 2004 Health Confidence Survey - Employee Benefit Research Institute

Looking Ahead

The Trade Adjustment Assistance Act of 2002 is due up for reauthorization in 2007, and part of that legislation involves the use of refundable tax credits to help workers and families displaced by certain trade actions afford health insurance. NAHU has worked closely on this issue, and has a number of recommendations for policymakers that would serve to improve and enhance the Health Care Tax Credit.

The 110th Congress is expected to continue its focus on the uninsured.

Other legislation that could be offered includes allowing the sale of health insurance across state lines and new pooling arrangements.  Reinsurance ideas to assist the small group market is another idea that appears to have some traction.

NAHU looks forward to working with the Congress to provide assistance and input into these and other ideas to help the uninsured.

For more information, please contact Peter Stein.

Content copyright © 1998-2010 National Association of Health Underwriters. All rights reserved.
National Association of Health Underwriters · 2000 North 14th Street, Suite 450 · Arlington, VA 22201
703.276.0220 · fax 703.841.7797 · info@nahu.org