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Health Credits

Most of the 40 million uninsured Americans are in working families who are not able to get good health care coverage options through their jobs. Often this is because their employer does not offer insurance; this is especially likely in smaller firms with a high concentration of lower-wage workers. Sometimes it is because they are part-time, short-term, or seasonal employees who cannot easily qualify for employer coverage. And sometimes it is because they have lost their jobs and therefore lost the employer subsidy that had been available to them.

Unlike most Americans, these workers and their families get little government assistance through tax subsidies for their health care costs. Providing new help targeted to these individuals is essential in order to reduce the number of uninsured. Consequently, the President has proposed financial support for the purchase of individual and family health insurance plans through health credits for low- and middle-income workers who do not have good employer-based coverage options. The health credits will make it possible for them get affordable coverage that meets their needs, including coverage through new and improved purchasing pool options. The President has also proposed additional funding for more flexible Medicaid and SCHIP coverage, to provide additional options for lower-income workers.

Health Credit for Americans Without Employer-Subsidized Insurance. The President's budget proposes $89 billion over ten years for new health credits to make private health insurance more affordable for Americans who do not have employer-subsidized insurance or public insurance. The deductibility of employer-subsidized insurance provides a tax subsidy that exceeds $100 billion annually. But many lower-income workers do not benefit from this assistance because they do not work in firms that offer subsidized health care to their workers.

Most of the uninsured have incomes below 200 percent of the poverty line, and most of these persons are not eligible for employer coverage or public insurance. Many retired workers also do not have access to employer-provided insurance, and are not eligible or do not prefer public insurance. Under the President's proposal, eligible families with two or more children and incomes under $25,000 could receive up to $3,000 in credits to cover as much as 90 percent of the costs of purchasing health insurance. The credit phases out at $60,000 for families. Eligible individuals earning up to $15,000 annually would receive up to a $1,000 tax credit. For individuals, the credit phases out at $30,000. The credits are refundable, so their value does not depend on taxes owed.

Advance credits would be available allowing individuals to directly reduce their monthly premium payments. For certain individuals, states could provide the power of group purchasing and opportunities for additional support and coverage options for the health credits through state-sponsored purchasing pools, for example through state employee purchasing pools or State Children's Health Insurance Program (SCHIP) purchasing pools for private insurance. The health credits could also be used in privately-sponsored health insurance purchasing groups.

This proposal will permit up to 6 million Americans who would otherwise have periods of uninsurance during a year to get coverage, and will support many more lower-income working families who must currently purchase non-employer health insurance with little or no government help. The proposal will not cause significant shifts out of good employer-provided health insurance. The value of the health credit is very large only for lower-income families, who are unlikely to be eligible for well-subsidized employer health insurance.

The uncapped tax deduction available to all employees with employer-subsidized health insurance, which is an extremely valuable subsidy, would continue to be the primary consideration in firms' decisions about insurance coverage. Thus, this proposal has a very high "bang for the buck" in terms of new people insured for the budgetary cost.