McDermott Proposes Credit to Uninsured for Health Premiums

"Why should a doctor or attorney who is self-employed be able to deduct a portion of the cost of his/her health insurance, while a secretary, who must buy his/her own health insurance policy not be able to deduct one cent of the cost!" McDermott said when introducing the measure. Rogan pointed out that the 30 percent credit "approximately equals the tax benefit enjoyed by workers with employer-provided tax benefits." The credit would be available to individuals with incomes up to $30,000 and married couples filing jointly who have incomes up to $50,000.

HON. JIM McDERMOTT OF WASHINGTON IN THE HOUSE OF REPRESENTATIVES

Friday, May 14, 1999

Mr. McDERMOTT. Mr. Speaker, today I rise to share with you some ideas that both Representative Rogan and I have about how to begin addressing the issue of the uninsured.

Many of us are stymied by the health care paradox of a booming economy. Our economy is booming. Unfortunately, parallel to this economic growth is the growing number of uninsured. There are now almost 44 million uninsured people in this country -- an increase of more than 5 million since 1993.

Today, we are introducing legislation to help stop the increase by targeting a 30% health insurance tax credit to the working uninsured. To qualify for our partially refundable credit, taxpayers must not currently be offered health insurance through their employer and they must have an individual income below $30,000/yr or a joint income of less than $50,000/yr. To ease administration, these income limits have been designed to match those of traditional IRAs.

When the General Accounting Office evaluated a similar proposal last June, it found that almost 36 million individuals without employer-based coverage -- roughly 75% of the uninsured -- would be eligible for the full credit on the basis of their adjusted gross income. Additionally, under our proposal, the self-employed would have the opportunity to choose between our proposed credit or the 60% deduction allowed by current law.

The benefits of this proposal are not only that it provides a tax benefit for those who need it most, it also would encourage health care consumers to be cost-conscious when choosing their health insurance loans so that they could maximize the value of the credit.

As you consider our proposal, keep in mind three questions: (1) who the uninsured are, (2) how has the tax code impacted health insurance in this country, and (3) most importantly, what can the 106th Congress realistically do to address this important social policy issue.

First, who are the uninsured? Contrary to what many people might think, roughly 75% of the uninsured work full or part-time. The remaining 25% are split evenly between those who are unemployed and those who are not in the labor force.

There isn't enough time today to talk at length about the demographics of the working uninsured. If we did, we'd find that most of them are age 18-34, that a disproportionate number of them are minority, that working poor parents are twice as likely to be uninsured as poor parents who are unemployed, and that the highest rate of uninsurance impacts pre-seniors between the age of 62-64.

Second, how has the tax code impacted health insurance in this country? Since WW II, America has relied on employers to provide health insurance and has rewarded them accordingly through the tax code. But, a growing number of workers lack employer-based insurance which policy-makers once took for granted.

Let me give a practical example of how the working uninsured fall through the cracks of our current employer based system. It you make $6.50 an hour your after tax income is $11,500. If you tried to purchase an average health insurance plan it would cost you about $3000. It is obvious that if the working poor are going to get health insurance we are going to have to come up with a way to help them.

I think we should all find it unacceptable for a person who works full time in this country not to be able to afford health insurance.

Third question, how do we in the 106th Congress address the issue of the working uninsured?

As you all know, I am a strong believer in universal health insurance and that the most efficient way of providing it is through a single payer financing system. A system that would lift the prohibitive burden of health insurance administration from employers and replace it with a public premium that shares responsibility throughout society.

But, if there is a way for us to guarantee universal coverage without single payer -- through a plan based on tax credits, Clinton- care, or Medicare for all -- I am willing to look at the proposal, as long as the plan guarantees access to quality care that's affordable. My bottom line is quality care at an affordable price.

Unfortunately, just because something is efficient -- such as a single payer system -- doesn't always mean that it will pass anytime soon. The reality is that the political climate to have an honest debate about universal coverage was destroyed by partisan bickering in 1994.

As a policymaker, the next question for me then becomes, what can we do in the near term to help folks who need health insurance today.

The tax code is a good place to look. After all it is the foundation of our employer-based health insurance system.

For a number of years now, this issue for me has been about simple tax fairness. As many may know, Congress recently made matters worse by passing legislation to allow the self-employed to deduct 100 percent of the cost of health insurance from their taxes. Since 1995, I have attempted to equalize the tax treatment of health insurance benefits by offering amendments on the House floor and in the Ways and Means Committee, and by introducing H.R. 539 in the last Congress.

My rallying cry -- which I am glad to see is starting to take hold -- has been the rhetorical question: Why should a doctor or attorney who is self-employed be able to deduct a portion of the cost of his/her health insurance, while a secretary, who must buy his/her own health insurance policy, not be able to deduct one cent of the cost!

So as a simple matter of fairness, this inequity in the tax code needs to be fixed.

According to the DC-based Lewin Group, the average federal health benefits tax expenditure is $918 per family. That sounds pretty good until you realize that a family whose income is below $40,000 receives an average of $766 in tax benefits, a $30,000 family receives just $500 in tax subsidies -- and the numbers get more depressing if I continue down the income scale.

The bulk of the tax subsidy is going to those who need it the least. If you make $100,000 or more, the tax code subsidizes your health insurance each year by more than $2,000.

So it seems to me that if Congress wanted to address the issue of tax fairness and assist a group of people who are in most need of health insurance, it would look at our proposal for a 30% credit. Our proposal is a reasonable and prudent approach to helping people who the system has forgotten about.

We are initiating the debate with a less is more approach. Our legislation will be less than 6 pages long.

I am hopeful that the sudden interest in tax code equalization will allow for thoughtful discussions and critiques of the wide range of proposals that will be offered this year.

In particular, as policymakers put forward proposals, they need to consider what the "take up rate" will be (will people use the credit if they are eligible), how does it impact existing employer health care contributions, and how much does the proposal cost.

I don't want to leave you with the impression that our limited proposal is the ultimate answer. I view it as a first step toward finding a solution for the uninsured.

I am proud of the fact that it is a moderate proposal because there are so many uncertainties about how it would work.

For example, we completely avoid the issue of market reforms because going down that route creates more divisions among political parties that can be realistically addressed in this Congress. By gently impacting the individual marketplace, I am hopeful that state legislatures will take steps to rationalize their individual markets and Congress can learn from both their successes and mistakes.

Conversely, more costly proposals that hope to dramatically influence the marketplace must include meaningful market reforms. Otherwise, such proposals will just be throwing large amounts of federal tax expenditures at an individual marketplace that is already overpriced. But there is no consensus around market reforms to be found.

I would also be especially cautious about more ambitious tax credit proposals because they run into serious financing problems. How do you pay for it without running a deficit? Even in this era of expected budget surpluses, a hefty price tag simply is prohibitive given our other national policy priorities.

More importantly, current comprehensive tax credit proposals may not be such a good deal for either the insured or the uninsured. If they appear too generous, employers will drop coverage and allow for their existing costs to be replaced with an inadequate government voucher, a voucher that would not come close to equaling their existing coverage.

Letting employers off the hook while increasing government and beneficiary costs would make the problem worse.

I am the first one to say that our credit should not replace the current system. If it did, it would be inadequate. That is not to say, however, that most of us in this room would not like to see the current system totally overhauled.

I view our proposal as a targeted effort to stop the current health insurance hemorrhaging, to induce some additional people to purchase health insurance before they get sick, as an achievable goal in a very divided Congress, and a stimulant of the necessary discussion we need to have about how this country can create an efficient means of providing universal health care coverage.

Chairman Archer has said he would like to mark-up tax legislation later this spring. Jim and I already have written him and Mr. Thomas asking them to look closely at our proposal for its immediate benefits. We have also asked the White House to look at our proposal and I hope that they too will once again show leadership by joining us in attempting to tackle this difficult issue of the uninsured.

By bringing people together, I am confident that we can build momentum within the Congress to generate bipartisan support behind proposals that begin to address the needs of the uninsured. Passage of our credit would be a first step toward enlightening that discussion.

I urge my colleagues to join us in our bipartisan effort.

                 AVERAGE FEDERAL HEALTH BENEFITS TAX

THE WORKING UNINSURED TAX EQUITY ACT

HON. JAMES E. ROGAN OF CALIFORNIA IN THE HOUSE OF REPRESENTATIVES

Friday, May 14, 1999

Mr. ROGAN. Mr. Speaker, I rise in support of important legislation my colleague Congressman Jim McDermott and I introduced today, the Working Uninsured Tax Equity Act. Many of the estimated 43 million Americans without health insurance are employed. The current Tax Code, however, discriminates against those workers if they choose to buy health insurance on their own.

Currently, employees with employer-sponsored health benefits enjoy those benefits tax free. This simple, straightforward proposal seeks to equalize the tax treatment between workers whose employer covers the cost of health care insurance premiums and those workers who must pay for their health insurance entirely from their own paychecks. The Tax Code should not punish these employees because their employer does not offer health benefits.

Our bill provides those workers paying for the entire cost of their health insurance a 30-percent partially refundable income tax credit to help defray the cost of those insurance premiums. The 30 - percent credit approximately equals the tax benefit enjoyed by workers with employer-provided tax benefits. The credit would be available to individuals with incomes to $30,000 and married couples, filing jointly with incomes to $50,000.

Our bill will not solve the crisis associated with the number of Americans who do not have health insurance. It does, however, provide a starting point for liberals and conservatives, state governments, insurance companies, and others to begin addressing health policy issues relating to uninsured Americans.

I encourage our colleagues from both sides of the aisle to join us in supporting the Working Uninsured Tax Equity Act.