$1,500 Tax Credit Would Not Help Most Individuals Purchase Affordable Health Coverage, Studies Find

A $1,500 tax credit for the purchase of individual health insurance would not provide affordable health coverage for most people and would not noticeably reduce the number of uninsured in the United States, according to two studies released this month by the Commonwealth Fund (Commonwealth Fund release, 5/1). A summary of the studies appears below:

• "Are Tax Credits Alone the Solution to Affordable Health Insurance? Comparing Individual and Group Insurance Costs in 17 U.S. Markets": Researchers compared the cost of group and individual health insurance in 17 market areas for 27- and 55-year-olds with annual incomes less than 200% of the federal poverty level and no preexisting medical conditions. The study found that group health insurance cost "substantially" less than individual health insurance for 55-year-olds in the 17 markets and often provided more benefits. In contrast, for young, healthy males, the median premium for insurance in the individual market was 22% less than the median premium in the group market. For young, healthy females, the premium in the individual market was 5% higher than the median premium in the group market. The study found that low-income 55-year-olds who received a $1,500 tax credit would have to pay 25% or more of their annual incomes to cover the cost of health insurance premiums. In contrast, in several of the markets, a 27-year-old male would pay nothing or very little with a $1,500 tax credit. The study recommends larger tax credits or tax credits adjusted for recipients' age, sex and medical conditions. The study recommends allowing tax credit recipients to purchase group health insurance through programs such as the Federal Employees Health Benefits Program and Medicare (Gabel et al., "Are Tax Credits Alone the Solution to Affordable Health Insurance? Comparing Individual and Group Insurance Costs in 17 U.S. Markets," May 2002). The study is available online. Note: You must have Adobe Acrobat Reader to view the study.
• "Bare-Bones Health Plans: Are They Worth the Money?: In the second study, researchers examined a number of "bare-bones" health insurance policies -- policies that cost 30% less than the BlueCross BlueShield standard option plan offered to federal employees -- to determine the "implications of these policies for purchasers." The study found that bare-bones health insurance policies "make insurance more affordable" for low-income individuals but also have "enormous risks." According to the study, low-income individuals who purchase bare-bones health insurance policies often have to pay 10% of their annual incomes to cover out-of-pocket costs, "leaving them to face catastrophic costs well in excess" of their incomes. The study concludes that bare-bones health insurance policies should include a "wraparound benefit" to limit individual risk (Glied et al., "Bare-Bones Health Plans: Are They Worth the Money?", May 2002). The study is available online. Note: You must have Adobe Acrobat Reader to view the report.