A Diverse and Dynamic Uninsured
Population
According to the U.S. Bureau of the
Census, 41.2 million Americans did not have health insurance
coverage in 2001.
Roughly half of the members of this diverse population are
uninsured for a period of six months or less, and about 40 percent
are uninsured for a period of 18 months or more.
The
overwhelming majority of the uninsured are young, between the ages
of 18 and 34; over 80 percent are part of a working family. They tend to be
employed in small businesses and are concentrated in wholesale and
retail trade industries as well as in agricultural, forestry,
fishing, mining, and construction. They are disproportionately minorities,
largely Hispanic.
While a substantial majority of these Americans are low-income
working people, the fastest growing portion is comprised of
middle-income to upper-middle-income families.
Although the majority of Americans have
health care coverage through their place of work, lower-income
working Americans are less likely to have employer-sponsored
coverage. Yet
Americans get unlimited tax relief for the purchase of health
insurance if--and only if--coverage is provided through their
employer. In 2000, the tax subsidy linked to employer-sponsored
coverage was estimated to be $126 billion.
Lower-income working Americans who do not
or cannot get health insurance at their place of work have few
choices; they can either purchase non-group coverage outside of the
place of work (and do so with after-tax dollars) or go without
coverage altogether. Health care economists concluded long ago that
this health care tax policy is inequitable and inefficient, and
that it distorts the insurance markets and contributes
significantly to the number of the uninsured in the United
States.
Policymakers should also consider the
"cost" of the uninsured to the public--including the costs of
government payments and programs and other public spending for
health care. In a recent research paper, Urban Institute analysts
Jack Hadley and John Holohan estimate that, in 2001 dollars, the
public paid $35 billion in uncompensated care and that $30.6
billion of this payment was in the form of government spending. As Hadley and Holohan
explain:
We...estimated that governments finance
most of the uncompensated care received by the uninsured, spending
about $30.6 billion on payments and programs largely justified to
serve the uninsured and covering possibly as much as 80-85 percent
of the uncompensated care costs through a maze of grants, direct
provision programs, tax appropriations, and Medicare and Medicaid
payment additions. Most of this money comes from the federal
government, primarily through Medicare and Medicaid, followed by
state/local tax appropriations for hospitals, Medicaid DSH and UPL
payments, and VA's direct care programs.
Replacing this inefficient and messy
system with direct assistance to the uninsured would be both
simpler and more cost-effective.
The President's Plan to Expand Coverage and
Choice
President Bush is proposing changes to
address the needs of America's uninsured by fixing the inequities
of the current system and mainstreaming uninsured individuals and
families into the private insurance market. While liberal
policymakers would like to enroll the uninsured in public programs
such as Medicaid (which are, even now, overwhelmed and
underperforming), available survey research shows that Americans
prefer to have private health coverage rather than government-run
public programs. To
achieve this objective, the Bush Administration would create a new
system of tax credits for health care coverage that targets
low-income individuals and families who do not have
employer-provided coverage.
In
addition, President Bush has put forward a series of policy changes
aimed at improving existing health care accounts. These policy
recommendations would enable individuals and families to control
decisions regarding their own health care and decide for themselves
how best to spend their health care dollars.
The
President's proposals to expand coverage and return personal choice
and control to individuals and families include the resubmission of
a system of tax credits, targeting individuals and families who do
not get health insurance through the workplace; allowing the
carryover of existing flexible spending arrangements (FSAs) to
enable individuals and families to build up savings for health care
expenses; and the elimination of statutory restrictions on medical
savings accounts (MSAs).
Health Care Tax
Credits
The President is resubmitting an $89 billion health care
tax credit proposal to assist millions of Americans who are without
health insurance provided through the workplace. The health care
tax credit would provide a subsidy of up to 90 percent of the cost
of a health insurance premium, up to a dollar amount of $1,000 per
person and $3,000 per family. Families with an adjusted gross
income of $25,000 or lower would be eligible for the maximum credit
of $3,000. For families with incomes above $25,000, the size of the
credit would vary with income and would be phased out at income
levels of $30,000 for an individual with no dependents and $60,000
for families with children.
In
its structure, the proposed Bush tax credit would be refundable,
meaning that low-income individuals and families who owe minimal or
no taxes would still receive a direct subsidy for the purchase of
health insurance. It would also be "advanceable," meaning that
individuals or families would get the assistance at the time
premium payment is due and not have to wait until the end of the
year for reimbursement.
The
Bush tax credit proposal outlines a new role for the states, both
in building an infrastructure that incorporates choice and
competition and in providing additional subsidies for low-income
Americans. Under the terms of the original Bush tax credit proposal
outlined last year, a person could purchase individual health
insurance with the tax credit; under the terms of the revised
version, in addition to options in the non-group market, a person
could purchase health insurance through private-sector purchasing
pools, state-sponsored insurance-purchasing pools, and state
high-risk pools.
These state purchasing arrangements are similar to those extended
to states under the Trade Adjustment and Assistance (TAA) Act.
At
the discretion of state authorities, after December 31, 2004,
individuals and families who would not otherwise be eligible for
public assistance could receive a federal tax credit to buy into
certain state-sponsored purchasing groups where private insurance
is offered or to buy into state government employee
health-purchasing groups. Moreover, states could supplement the
federal tax credits used for group purchasing of private health
plans with additional state contributions. Under the terms of the
Bush proposal, states could make an additional contribution of up
to $2,000 per adult for those with incomes at 133 percent of the
poverty level; this contribution would be phased down to $500 per
adult for those with incomes that are 200 percent of the poverty
level.
Health Care
Accounts
Beyond the tax credit proposals, the Bush Administration
has unveiled a broad range of policy improvements to make health
care coverage more affordable by giving individuals greater control
of their health care spending. In 2002, the U.S. Department of the
Treasury issued a ruling to clarify the status of health
reimbursement arrangements (HRAs). Through these arrangements,
employers could offer employees a health plan in combination with a
tax-free spending account for health care expenses, allowing any
unspent funds to be carried over from year to year, tax-free.
Beyond this administrative change in the
system, the Bush Administration is also proposing statutory changes
that would expand and improve Archer MSAs and FSAs. Changes in Archer
MSAs are particularly significant, given that nearly 73 percent of
MSA enrollees were previously uninsured.
Flexible
Spending Arrangements
Under current law, employees can participate in
employer-based flexible spending arrangements, through which
employees can set aside a portion of their salaries in a special,
pre-tax account to use for anticipated qualified health care
expenses. If employees do not use the funds they have set aside in
their FSA by the end of the year, however, they lose them. They may
not carry over any unused funds to the following year. Under the
Bush proposal, employees could carry forward up to $500 of unused
funds in their FSAs tax-free every year for medical expenses.
Medical Savings
Accounts
Today, some Americans are permitted to open medical
savings accounts from which individuals and families can pay for
their medical expenses. These accounts are tax-free and can be
rolled over from year to year. Under current law, no more than
750,000 individuals can have a medical savings account, and the MSA
demonstration is scheduled to end after December 31, 2003. These stipulations
are both a profound restriction on the health insurance market and
a legal impediment designed to discourage the growth of such
plans.
In
addition to these restrictions, there are a number of statutory and
regulatory restrictions that determine how such accounts may be
used. For example, under current law, an MSA must be coupled with a
high-deductible health plan. The law specifically defines a
high-deductible plan as one that has "deductible(s) in the range of
$1,700 to $2,500 in the case of individual coverage, and $3,350 to
$5,050 in other coverage arrangements, with out-of-pocket limits
set at $3,350 for individual coverage and $6,150 in "all other
cases."
The
Bush proposal would eliminate the artificial participation cap on
MSAs and make the demonstration permanent. These changes would
remove market disincentives and allow supply to meet market demand.
The Bush proposal would open up the MSA option to any individual
who wanted one (with the exception of those who would otherwise be
eligible for a refundable tax credit) and change the definition of
a "high-deductible" plan to any plan with an annual deductible as
low as $1,000 for an individual and $2,000 for family or other
coverage, with an additional provision to encourage preventive
medical services. In addition, it would allow both employers and
employees to contribute to the account and would permit
contributions up to 100 percent of the annual deductible.