“Tax Credits”: a solution towards universal health care?

Original statement by Gary Lauer, President and CEO of eHealthInsurance, an on-line broker for health insurance arguing that tax credits may have an important impact for people who buy health insurance

“We are the largest source of health insurance for individuals and families in the country. We’re the largest producer of health insurance for many if not most of the largest carriers as well. So what we did is we sampled randomly 20,000 active customers.” “We found that the average premiums that these 20,000 individuals and families are paying are in the range of $1,200 to $1,500 per person per year. … based on this, what it tells us is that tax credits may, in fact, have an important impact for people who bought health insurance.”

“Tax credits so far are the best proposal that we’ve heard to help address a large portion of the uninsured. There are other people who are uninsured who obviously this is not going to help. There are people who have got very, very serious medical conditions either presently or historically, there are some people who are very economically challenged, you know, many of the high risk pools in states, other kinds of things need to be done for those and we feel very strongly about that. But you’ll find that we believe close to half of the uninsured today can afford health insurance or may be able to afford health insurance through tax credits.”

“You know, what we find is that there are some individuals and families who simply are uninsurable – just the way the system is today, they’re uninsurable. And we feel very strongly about high risk pools as a way to really help and support those people. We find that about 80 percent or 4 out of 5 of our applicants actually get health insurance coverage. … one out of five goes uninsured through eHealthInsurance is not able to get coverage. It’s safe to say that I won’t disclose information on income (of those insured) at this point. I’ve been asked about this previously. We’re going to go back and take a look at that and see if there’s a way to segment that without compromising anything.”

Check out the original document

Don comments: What a fantastic opportunity this is for Mr. Lauer’s company. His market is composed of a population subset that uses the Internet for making purchases. So he begins with individuals that are Internet sophisticated, mostly financially secure, and generally younger and therefore healthier than average. His insurance products exclude the chronically ill (by underwriting) and lower income individuals (by affordability) anyway. His carriers are elated to have directed to them this highly select segment of the market. He suggests that he is filling a void for the uninsured, although I suspect that more traditional brokers would suggest that he is merely attracting their former clientele. The fact that he refuses to disclose the income levels of his clients makes me suspect that he is not really filling the void for low income, uninsured individuals after all.

We continue to hear strong support for tax credits as an answer to insuring the uninsured. Mr. Lauer’s company demonstrates that tax credits would be a great deal for young, healthy, affluent families, and an even better deal for his company. But the problem we need to address is insuring those with more modest incomes and with existing disorders. Tax credits would have very little impact on those with the greatest needs. Mr. Lauer’s solution is to shift those costs to the rest of us through taxpayer funded public programs and through high risk pools, while he walks away with the cream of the business which is funded by us through tax credits!

Another attendee of this meeting was quite perceptive:

Bob Griss, Director of the Center on Disability and Health, Washington, DC:

“And I really don’t understand why there isn’t more attention to a pool that everybody’s in, that covers everybody, because to me that is the missing seat on the panel.”

The American Prospect September 10, 2001 “Insufficient Credits” 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?

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!

Subject: Dr. Brewer responds on tax credits

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.”