CAHI Issues: Tax Credits for the Uninsured
There is a reason more than 45 million Americans lack health insurance at any given time: tax discrimination. Put quite simply, most uninsured individuals cannot afford health insurance. Creating tax equity would make access to quality care less of a financial burden for those who do not have health insurance through their workplace.
Currently, the IRS allows employers to deduct their contributions to employee health coverage, while employees receive a "tax exclusion," which means employer money spent on health coverage is excluded from employee income. Additionally, the self-employed are permitted to deduct what they spend on health insurance premiums.
However, individuals working for employers who don't provide health insurance get no tax relief. They must pay their taxes first and buy a policy with what's left over. The Council for Affordable Health Insurance (CAHI) strongly believes that offering health insurance tax credits is one way to resolve this disadvantage.
What is a Health Insurance Tax Credit?
Unlike a tax deduction, where you subtract the amount of money spent on a deductible item from your income, a tax credit permits the individual to subtract the amount of the credit directly from the amount of the taxes owed. For example, a worker with a family who owes $5,000 in income tax and qualifies for a $3,000 health insurance tax credit (to be applied toward the cost of a health insurance policy) would pay only $2,000 in taxes.
In order for a tax credit to help low-income workers, it has to be "refundable," which means the worker still receives the full value of the credit even if he doesn't owe income taxes. Additionally, making the credit "advancable" gets the money to workers up front.
CAHI advocates eliminating tax discrimination in health insurance. Tax equity would decrease the number of uninsured, especially among low-income workers, because it would make policies more affordable.
CAHI Solutions
Federal tax credits were enacted on a limited basis in 2003 for displaced workers. CAHI believes that expanding an advancable, refundable health insurance tax credit to all uninsured workers would increase tax equity and help make health insurance more affordable. The Fair Care for the Uninsured Act (H.R.765)introduced in the House of Representatives in February 2005*, would provide a $1,000 refundable tax credit per adult, and up to $3,000 per family, to use toward the purchase of a health insurance policy. As a result, millions of uninsured Americans could afford to buy their own health coverage.
*Fair Care was also introduced in the 108th Congress in 2003: H.R.583 / S.1570
Health Coverage for the Uninsured Act of 2005 ( H.R. 1872 ) was introduced in May of 2005. The bill provides targeted assistance to individuals, who do not receive health care through their employer or through other government programs, in three ways: premium deductibility, tax credits for small businesses that contribute to their employees Health Savings Account (HSA) and tax credits for low-income individuals.
Legislative Resources
Fair Care for the Uninsured Act – H.R.765
CAHI letter of support for the Fair Care for the Uninsured Act, 2005: Rep. Dan Lipinski / Rep. Mark Kennedy
CAHI press release about Fair Care
Health Coverage for the Uninsured Act - H.R. 1872
CAHI Letter of Support for H.R. 1872
CAHI’s “Cover the Uninsured Week” Solution #3, May 12, 2004
Census Numbers Show that Tax Credits Are Necessary, August 28, 2003
For More Information
"An Affordable Way to Help the Uninsured" - CAHI's Issues & Answers n.120
"No Justice, No Insurance" - CAHI's Issues & Answers n.102
"Reducing Uninsurance by Reforming Health Insurance in the Small Business Sector" - Heritage Foundation Policy Backgrounder
"New Data on Health Insurance, the Working Poor and the Benefits of Health Care Tax Changes" - Heritage Foundation Webmemo
"Responsible Tax Credits for Health Insurance" - Mark V. Pauly and John S. Hoff, AEI Press
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