FEDERAL POLICY: CAHI Touts Targeted Tax Tactics
Several health care experts came out in favor of adjusting the tax code to remedy the problems of the uninsured and the lack of consumer choice at a National Press Club briefing Thursday sponsored by the Council for Affordable Health Insurance (www.cahi.org). CAHI director of research and policy Victoria Bunce said, "In survey after survey, most uninsured Americans cite cost as the main reason for not buying insurance or dropping coverage." CAHI's study, entitled "Federal Tax Equity: Increasing Health Care Choices and Reducing the Number of Uninsured Through Tax Credits," largely attributes this to tax policies which have had a progressively negative effect on the health care system beginning in 1939. That is, the tax code grants a substantial economic benefit to those workers whose employer provides health benefits by treating it as untaxed income, while those who work for employers without health benefits must pay for health insurance with their own after-tax income. Moreover, such insulation of the employee from their own health care costs has resulted in excessive utilization, which drives up the overall cost in the insurance market.
Careful, It's Getting Wonkish in Here
"CAHI believes that providing tax equity is an effective way of making health insurance more affordable," said Bunce, adding, "Tax equity can be achieved most efficiently and fairly through a tax credit system." CAHI advocates maintaining existing tax policy with the exception of providing all Americans with a tax credit to purchase health insurance. Thus, individually paid premiums would be treated the same as employer-paid premiums. CAHI contends this would provide several significant benefits to the health insurance market:
- Utilization: As individuals would be more directly responsible for their own health care costs, they would not overinsure themselves and would not utilize services except when necessary.
- Coverage mandates: The tax credit would render unnecessary state and federal coverage mandates, such as the 1996 Kassebaum-Kennedy Act and the various HMO reforms currently being debated in Congress. According to Mark Litow, consulting actuary to CAHI, if an individual were dissatisfied with the services provided by his employer's HMO, they could simply take the tax credit instead and purchase a plan more suited to their needs, without losing the employer-based tax benefit.
- Medicaid: Low-income individuals who may not be able to pay for the entire cost of their insurance via the tax credit "could transfer their tax credit voucher to the state and participate in state health coverage programs" like Medicaid. The state would then design a program to enhance an individual's credit through subsidies. Under such a system, the government would no longer be a direct insurer, but a regulator and provider of income-support. Also, Medicaid recipients would have the option of choosing their health plan just like private payers.
What They're Saying
Lawmakers and analysts sympathetic to market-based health insurance reform support CAHI's proposal. House Majority Leader Dick Armey (R-TX) said, "Today's tax code is driving up the number of uninsured by penalizing people who try to buy their insurance outside the workplace. That's grossly unfair. ... [W]e must create a tax credit to make health insurance affordable for individuals who can't get insurance through their jobs. Few things in the complicated area of health insurance are more obvious than the simple answer to this basic lack of tax fairness." Rep. Bill Thomas (R-CA) added, "The current (health care) system is fatally flawed. ... It needs fundamental reform beginning with the tax code." Grace-Marie Arnett, president of the Galen Institute, noted that the problem of America's 43 million uninsured "has to be addressed and I think this is the most viable proposal" (Jeff Dufour, American Health Line).