Study criticizes health insurance tax credit plan

Others believe the credits would rightly extend the tax benefits of group insurance to individuals.

By Joel B. Finkelstein, AMNews staff. April 19, 2004.

Washington -- Health insurance tax credits might not be the most cost-effective option to help the more than 40 million Americans without health insurance, says a recent analysis from the American Economic Assn. at Vanderbilt University in Tennessee.

The Bush administration's tax credit proposal would provide less coverage per dollar than an expansion of Medicaid to childless adults, said Jonathan Gruber, PhD, a professor of economics at the Massachusetts Institute of Technology, who conducted the analysis.

Offering a tax incentive for individual health insurance actually could encourage companies to drop coverage, some experts fear.

But the American Medical Association and some lawmakers believe that tax credits are a good way to extend coverage to the uninsured. House lawmakers say provisions in their bill would prevent employers from dropping coverage.

According to Dr. Gruber's analysis, public health coverage for all adults up to 80% of the federal poverty level would cost $1.17 in federal spending for every dollar in health coverage for someone currently without health insurance. By comparison, the government would spend $3.32 for every dollar of new health coverage achieved through tax credits because many of the credits would go to people who already had health insurance.

While both strategies would cost the government the same amount overall and each would reach about 3 million uninsured people, in the case of tax credits, much less of the money would go to covering people who don't already have health insurance.