^{Posted on April 5, 2004}

Pro & Con - Are tax credits the best way to cover the uninsured?

Pro & Con - Family Practice News, April , 2004
Are tax credits the best way to cover the uninsured?

PRO: Dr. John C. Nelson, AMA
CON: Dr. Don McCanne, Physicians for a National Health Program

Dr. John C. Nelson is president-elect of the American Medical Association.

Providing health insurance to the swelling ranks of the uninsured has become one of America’s most pressing health care issues.

As physicians, we know that when our patients don’t have insurance, their health is in jeopardy. In fact, uninsured women are twice as likely as women with insurance to die if they have breast cancer. While many states and the federal government are working to cover the uninsured, much more needs to be done to provide the majority of uninsured Americans with stable health care coverage.

To most effectively increase health care coverage, we need a national solution that builds on the strengths of our current system. The American Medical Association has long held that properly structured tax credits are the best approach to covering the uninsured.

The existing tax exclusion for employer spending on health insurance should be transitioned to a system of tax credits for individuals and families to obtain health insurance. Currently, the government provides a $100 billion subsidy for health insurance to employees who receive employer-sponsored health insurance every year. The result: Two-thirds of the tax subsidy goes to the wealthiest one-third of American families.

Tax credits should be inversely related to income and generous enough to put health insurance within everyone’s reach. They should be refundable, and advanceable, so that families who owe little or no income tax still receive the tax credit, and those who cannot afford monthly out-of-pocket premium payments can purchase coverage without waiting for a year-end tax credit.

Just as strong as the AMA’s support for tax credits is our opposition to the single-payer health system proposal. Long waits for health care services, delays in adopting new technologies and maintaining facilities, and development of a large bureaucracy that can cause a decline in the authority of patients and their physicians over clinical decision-making are all hallmarks of the single-payer system.

We need a plan that will work, and tax credits are an idea whose time has come. In 2002, tax credits for displaced workers gained bipartisan support and became available through federal legislation, and President Bush recently reaffirmed his support for tax credits with his proposal to establish refundable tax credits to help low-income workers buy health insurance coverage. In addition, the major Democratic presidential candidates have embraced tax credits as part of their health care plans.

Currently, there is little choice in health insurance plans. Most Americans have health insurance through their employers, and more than 90% of employers offer only one plan. Through tax credits, individuals and families would be able to select any plan of their choosing, and insurers would be more responsive to patient demand for access, quality, and affordability. This shift in choice and ownership would spur insurers to innovate new plans and new forms of coverage, including a wider range of affordable coverage options.

Let’s act now to better the health of our nation’s uninsured men, women, and children by working together to promote a solution that works for individual and family tax credits to purchase health insurance.

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Dr. Don McCanne is immediate past president of Physicians for a National Health Program.

Tax credits are not the best way to cover the uninsured. The goal of reform should be to provide comprehensive, but affordable, coverage for everyone. Tax credits fall short on these goals.

Tax credit proposals are designed to provide financial assistance for the purchase of private health plans that are becoming less and less affordable. The problem is that private plans are an expensive, inequitable, and administratively inefficient method of funding health care. They waste resources on their own administrative excesses and especially through the tremendous administrative burden that they place on the health care delivery system. And since tax credits do not cover the entire premium, many people still will be left without coverage simply because they cannot fund their portion.

Studies have shown that tax credits for individual plans would have only a very minimal impact on the numbers of the uninsured since uptake of the plans would be mostly offset by the incentives for employers to drop coverage for their employees. As the amount of the credit increases, the rate of termination of employer-sponsored plans also increases. Shifting employees to the individual market is a problem because premiums are higher for comparable coverage, benefits are lower, and cost sharing is greater. Those with the greatest need for coverage may be excluded from the individual market because of preexisting disorders.

Other studies have demonstrated that using tax policies to assist with the purchase of group plans is the most expensive method of expanding coverage. Large employers and government purchasers such as the Federal Employees Health Benefit Program have failed to control escalating costs. Middleman health plans were able to slow cost increases through provider contracting. But that sponge was wrung dry, and they no longer are able to further slow the growth in costs. Providing more federal funding would only add fuel to this health care cost explosion.

There is a way to provide affordable, comprehensive coverage for everyone. Replacing our fragmented, wasteful system of private plans, public programs, and no programs at all with a single, publicly funded and publicly administered universal insurance program would provide enough administrative savings to pay for comprehensive care for everyone, with no increase in our current level of health care spending. This has been demonstrated not only by microsimulation models, but also by the actual experience in other nations. And the United States has the unique advantage that the $1.79 trillion that we are already spending is more than enough to ensure a capacity that would prevent excessive queues, and to continue to provide adequate incentives for future technologic innovation.

Instead of pouring more tax dollars into a wasteful, flawed, and inefficient system of funding care, let’s adopt a much more equitable and affordable system. Our current private and public health care delivery system would function much more effectively under a publicly funded and administratively efficient system of insurance that truly covers everyone.