Insufficient Credits
The American Prospect
September 10, 2001
by Marcia Angell, M.D.
Marcia Angell, M.D., senior lecturer in social medicine at the Harvard Medical School and the former editor-in-chief of the New England Journal of Medicine:
Faced with the likelihood of a large increase in the number of Americans without health insurance, many policy makers and interest groups are coalescing around the same solution: refundable tax credits to enable the uninsured to purchase private insurance. (A refundable tax credit is like a cash subsidy.) In insurance terms, this is essentially a defined contribution (contributing only a fixed amount toward the premium, and requiring workers to pay the rest). Often billed as a method to increase workers' options, this is really inflation protection for employers.
Tax credits for the uninsured are a bad idea for several reasons.
First, even the most generous of the proposed tax credits would not buy an adequate policy.
Second, the influx of federal money would probably cause premiums to rise even faster than current projections. Unless premiums are regulated (which nobody proposes), tax credits for the uninsured would be a windfall for the insurance industry.
Third, tax credits would tend to drive out other types of coverage. Employers could use them as an excuse to drop health benefits altogether or shrink them further. That would be particularly likely if premiums rose steeply as a result of the tax credits.
Fourth, most of the tax-credit proposals require individuals to fend for themselves in the notoriously treacherous market for individual coverage. Some companies would likely offer cut-rate plans for the amount of the tax credits, but those plans would have very large out-of-pocket payments and very narrow benefits.
Finally, complex administrative requirements, including the need to monitor the insurance market and ensure that criteria for eligibility are met, would probably generate a huge and expensive new government bureaucracy. That would siphon off still more of the U.S. health dollar for overhead, which is already an exorbitantly high fraction of the total.
Compare the tax-credit idea with Medicare (which is a public, single-payer system embedded in the private, market-based system). Medicare offers defined benefits, not defined contributions; that is, all beneficiaries are entitled to certain services. The program provides a uniform set of benefits to nearly everyone who qualifies, and it does so far more efficiently than the private sector's employment-based system. Furthermore, by regulating prices as well as benefits, Medicare limits what providers charge. Certainly, Medicare has plenty of room to improve. It could make the benefit package more appropriate for seniors and it could control inflation better (although it does better on this score than the private sector). But the essential mechanisms for doing both are in place.
No system can work if it doesn't cover virtually everyone automatically and regulate prices as well as benefits. No matter how many ways we try to shift costs and plug holes, we will sooner or later have to face that fact. Otherwise, we continue to chase a rapidly receding quarry: health care that is both adequate and affordable. Precisely what makes the tax-credit idea attractive to conservatives-- the preservation of the private market--is what will doom it in practice. We had better come up with another solution, because the problem is about to get a lot bigger. Universal Medicare, anyone?
<http://www.prospect.org/print/V12/16/angell-m-2.html>http://www.prospect.org/print/V12/16/angell-m-2.html
Comment: Repeating the words of Sen. Jay Rockefeller, at a Senate Finance Committee hearing on tax credits:
"... the tax credit is the wrong approach. It is the wrong approach, period. That's all there is to it. It will not work. It will not work at the figures that are being offered by you... the figures that'll come in part from the other side, maybe some from our side. It won't work. And I think we have to decide on this committee do we want people to get health insurance or do we not?"
Breaking news: Kaisernetwork.org reports today that "those measures with greater chances of passing include the allocating $28 billion over three years to reduce the number of uninsured through tax credits and CHIP and Medicaid expansions... "
Further comment: Increasing income eligibility levels for the CHIP and Medicaid programs is very important as a temporary, urgent measure that would provide immediate relief of unmet medical needs. Concurrently we must continue unrelenting advocacy for comprehensive reform. But right now, the tax credit issue is on the front burner. It is imperative that we snuff it out immediately!
Jeannie Brewer, M.D. is a board member of California Physicians Alliance, the California chapter of Physicians for a National Health Program. She has multiple sclerosis and will be uninsurable once her COBRA benefits run out. This is her response to the messages on tax credits for health insurance:
"I am just one small example, but I pay almost $600 a month for health insurance for me and my newborn daughter and even that will disappear in 2 years, and I will not be able to purchase insurance no matter what the tax rebate/credit/incentive is. We need a single payer plan, period."