Current Proposals To Provide Tax Credits to Uninsured Would Largely Help Those with Higher Incomes, Brief Says

Current tax credit proposals intended to assist laid-off workers purchase health coverage would mostly benefit those with higher incomes and few health risks, according to an analysis by the Economic and Social Research Institute. The analysis examines various tax credit plans, including one that would give tax credits to pay up to 60% of health plan premiums for unemployed workers and another that would give tax credits of up to $1,000 for individuals and $3,000 for families, depending on annual incomes, to cover up to 90% of premiums. Individuals and families could use the credits to pay for private insurance or, if they are eligible, to continue employer-based coverage through COBRA, which requires employees to pay 102% of premium costs. The effectiveness of either proposal hinges in "large part" on a person's financial resources and potential health risks, the analysis states. For example, according to the analysis, laid-off workers with "limited financial resources" and very few health risks could use the tax credits to purchase "low-price, limited" health plans that would not include preventive care benefits and only would protect against catastrophic financial loss. The analysis notes, however, that based on past experience, few people likely would be willing to pay even the 40% of premiums for such plans not covered by the 60% tax credit. Unemployed workers with low incomes and high health risks would generally remain uninsured, the analysis says, adding that only a portion of these people whose companies allowed them to continue health coverage through COBRA would be able to purchase coverage. Meanwhile, laid-off workers who had other financial resources, such as spousal income, could "supplement" the tax credits with their own money to purchase "relatively broad coverage," according to the analysis. Most laid-off workers have limited financial resources, however; 58% of unemployed adults who are ineligible for COBRA benefits have annual incomes less than 200% of the federal poverty level, or $17,720 for an individual. The report notes, "Even with [tax] credits boosting [unemployed workers'] purchasing power," the remaining premium costs, health factors and "limited access" to group coverage would "narrow many laid-off workers' choices." Regardless, the authors of the analysis say they do not "reject the basic concept" of using tax credits to reduce the number of the uninsured, although they suggest that the credits be "restructured" to include more coverage options for laid-off workers with "few resources and high health risks" (Dorn/Meyer, Economic and Social Research Institute Issue Alert, March 2002). The report is available online. Note: You must have Adobe Acrobat Reader to view this document.