Tax Reform as the Key to Successful Health Reform (Robert E. Moffitt)

8/7/2019 Tax Reform as the Key to Successful Health Reform (Robert E. Moffitt)

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Reducing the UninsuredReducing the UninsuredThrough Tax ReformThrough Tax Reform

Robert E. Moffit, Ph.D.Robert E. Moffit, Ph.D.

Director, Center for Health Policy StudiesDirector, Center for Health Policy Studies

The Heritage FoundationThe Heritage Foundation

20072007


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Moffit Slide #Moffit Slide # 11

THE UNINSURED ARE A DIVERSE

AND DYNAMIC POPULATION

Roughly 85 percent of Americans have public or private insurancecoverage. The minority of the uninsured are a heterogeneous population,and their coverage options are affected by a variety of social, economic,

geographical and political factors.

y 8 out of 10 uninsured Americans are members of working families.

Health insurance coverageand the lack thereofis predominantly a function ofemployment. CBO reports that more than 3 out of 4 uninsured Americans do not get

coverage through their place of work.y The uninsured are heavily concentrated in small businesses, and theservice and retail trade industries. They also work on a contract basis and arepart-time employees.


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y The uninsured, as a group, are relatively young, between 19 and 39;

and they are adults with children, who work in small businesses.

y The uninsured population is mainly composed of low-incomeworking people; six out of ten of the uninsured families have family incomesbelow 200 percent of poverty. But you also find the uninsured in middle and evenupper income categories.

y The uninsured are disproportionately found among minority

workers and their families. The highest incidence of un-insurance is foundamong Hispanics, followed by African Americans. Over one third of Hispanicworkers and their families are uninsured.

y The uninsured are in and out of insurance coverage. CBO estimatesthat 45 percent of the uninsured are in a spell of un-insurance that lasts 4 monthsor less; 26 percent are uninsured 5 to 12 months; 16 percent are uninsured more

than 24 months; 13 percent are uninsured 13 to 24 months.


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Total Uncompensated Care in 2004(in billions)

$ 6.3

$8.8

$ .8

$3.6Uncompensated Care

Adults - $35.

b

Children - $5.4 b

Full-Year Uninsured - $9.9 b

Part-Year Uninsured - $

0.6 b Total = $40.7 billionData may not total due to rounding.SOURCE: Hadley and Holahan analysis of

998 -

00 MEPS data,

004; prepared for theKaiser Commission on

Medicaid and the Uninsured; ay 0, 004.

Adults, Full-Year

Uninsured

Adults, Part-Year

Uninsured

Children, Part-Year

Uninsured

Children, Full-Year

Uninsured


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Moffit Slide #Moffit Slide #

Total Government Spendingvailable for the Uninsured, 2004(In Billions of Dollars)

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# $ $ ' 4

Total = $34.6 Billion

State Medicaid

DSH/Supplemental Payments

$1.8 (5.2%)

State & Local Tax5

ppropriations/Payments to Hospitals

$7.9 (22.8%)

State Director Service

Programs

$1.4 (4.0%)

Federal Director Service

Programs

$6.1 (17.6%)

Federal Medicaid

DSH/SupplementalPayments

$6.9 (19.9%)

Federal Medicare

DSH/IME

$10.5 (30.3%)


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Estimates of Per Capita Spending,2004 dollars(includes uncompensated care)

$1,629

$2,466

$2,975

Full-Year Part-Year Full-Year Insured

Uninsured

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Federal Tax Expenditures For Health Insurance

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State and Federal Tax Expenditures for Employer HealthBenefit Contributions, 2004

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ECONOMIC REALITY:TAX POLICY SHAPESECONOMIC REALITY:TAX POLICY SHAPESTHE HEALTH INSURANCE MARKETTHE HEALTH INSURANCE MARKET

The Congressional Budget Office (CBO) studied the taxThe Congressional Budget Office (CBO) studied the taxtreatment of health care in 1994 and found fourtreatment of health care in 1994 and found fourfundamental problems with todays tax policy:fundamental problems with todays tax policy:

1.1. It undermines the portabilityIt undermines the portability of health insurance and restrictsof health insurance and restrictsconsumer choice because the insured individuals employer ownsconsumer choice because the insured individuals employer ownsthe policy;the policy;

2.2. It hides the true cost of health careIt hides the true cost of health care as well as the identity ofas well as the identity ofthe person paying for the care by creating an impression that healththe person paying for the care by creating an impression that healthcare is a free fringe benefit, not a service purchased with moneycare is a free fringe benefit, not a service purchased with money

that otherwise would be spent on wages or other benefits. (Otherthat otherwise would be spent on wages or other benefits. (Otherstudies indicate that up to 88 percent of the cost of health benefitsstudies indicate that up to 88 percent of the cost of health benefitsactually is paid for by lower employee compensation);actually is paid for by lower employee compensation);


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Tax Policy Distorts Health InsuranceTax Policy Distorts Health Insurance

and,and,

3.3. It fuels higher health costsIt fuels higher health costs, because it encourages employees, because it encourages employeesto seek more comprehensive and expensive benefitsto seek more comprehensive and expensive benefitsthe morethe more

expensive the benefits, the greater the tax exclusion;expensive the benefits, the greater the tax exclusion;

4.4. It favors those who have higher incomesIt favors those who have higher incomes, while low, while low--incomeincomeworkers who are least able to afford coverage on their own enjoyworkers who are least able to afford coverage on their own enjoyvery few benefits, and is thus very regressive.very few benefits, and is thus very regressive.


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Average Federal Health Benefits TaxAverage Federal Health Benefits TaxExpenditure by Income Level in 2004Expenditure by Income Level in 2004

$102

$292

$726

$1,2

1

$1,448

$2,1

4

$2,640$2,780

$0

$500

$1,000

$1,500

$2,000

$2,500

$ ,000

Less than$15,000

$40,000 -$49,000

$30,000 -$39,999

$20,000 -$29,999

$15,000 -$19,999

$100,000or More

$75,000 -$99,999

$50,000 -$74,999

a/

ti j ate

fo k familie

witl

a famil m l

eadn

o de k age

So

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k e

Lewi

oG

ko

n

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timate

n

io g t

l

e

ealtl

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efit

Simulatio o Model (

SM)

Average Per Family $1,482


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THE PRESIDENTS TAX REFORMTHE PRESIDENTS TAX REFORM

Universal Standard Deduction would replace theUniversal Standard Deduction would replace theexisting tax treatment of health insurance.existing tax treatment of health insurance.

Families would pay no income or payroll taxesFamilies would pay no income or payroll taxeson all health plans up to $15,000 annually. (Theon all health plans up to $15,000 annually. (Theaverage employer group family plan cost isaverage employer group family plan cost is$11,500).$11,500).

Individuals would pay no income or payroll taxesIndividuals would pay no income or payroll taxeson all health plans up to $7,500.on all health plans up to $7,500.


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IMPACT OF THE PRESIDENTS TAXIMPACT OF THE PRESIDENTS TAX

REFORMREFORM The standard deduction will lower taxes for about 80The standard deduction will lower taxes for about 80

percent of those with employer provided health policies (percent of those with employer provided health policies (estimated 100 million Americans).estimated 100 million Americans).

A Family of Four with group coverage and an annualA Family of Four with group coverage and an annualincome of $60,000 would get a tax break of $424.income of $60,000 would get a tax break of $424.

A Family of Four without coverage and an annual incomeA Family of Four without coverage and an annual incomeof $60,000 would get a tax break worth $4,545.of $60,000 would get a tax break worth $4,545.

For all Americans without coverage who would buyFor all Americans without coverage who would buy

health insurance on their own, the average tax reductionhealth insurance on their own, the average tax reductionwould reach $3,350 in 2009would reach $3,350 in 2009 The Policy would result in a tax increase for about 20The Policy would result in a tax increase for about 20

percent of those with employer provided health policies.percent of those with employer provided health policies.


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Impact of The Presidents PlanImpact of The Presidents Plan

Cont.Cont. It would increase the demand for health insurance andIt would increase the demand for health insurance and

reduce unreduce un--insurance. Lewin estimates a reduction in theinsurance. Lewin estimates a reduction in theuninsured of 9.2 million in 2009.uninsured of 9.2 million in 2009.

It would be a middle class tax cut; about 70 percent ofIt would be a middle class tax cut; about 70 percent ofthe tax reductions would go to families with incomes ofthe tax reductions would go to families with incomes ofmore than $50,000 annually. ( Lewin Group, 2007).more than $50,000 annually. ( Lewin Group, 2007).

It would level the playing field between employer basedIt would level the playing field between employer basedand nonand non--employer based insurance ( association, unions,employer based insurance ( association, unions,

ethnic and fraternal organizations, faithethnic and fraternal organizations, faith--based plansbased plansetc.)etc.) Problem: It would have little or no impact on lowProblem: It would have little or no impact on low--

income families who do not file tax returns.income families who do not file tax returns.


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A Possible Grand Compromise?A Possible Grand Compromise?

Combine the Tax Deduction with a refundable healthCombine the Tax Deduction with a refundable healthcare Tax Credit for low income persons.care Tax Credit for low income persons.

Agree to use existing Government Subsidies to HospitalsAgree to use existing Government Subsidies to Hospitalsand Other Health Care Facilities for the Uninsured ( $36and Other Health Care Facilities for the Uninsured ( $36billion) as a pool for refundable credits or health carebillion) as a pool for refundable credits or health carevouchers ( Eg. Massachusetts).vouchers ( Eg. Massachusetts).

Create Statewide Health Insurance Exchange as anCreate Statewide Health Insurance Exchange as anadministrative platform for vouchers( Medicaid andadministrative platform for vouchers( Medicaid andSCHIP) for private health insurance.SCHIP) for private health insurance.

Allow Interstate Commerce in Health InsuranceAllow Interstate Commerce in Health Insurance


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A UNIVERSAL TAX CREDITA UNIVERSAL TAX CREDIT

PROPOSALPROPOSAL

The Key ElementsThe Key Elements::

Universal Coverage Through a Universal Tax CreditUniversal Coverage Through a Universal Tax CreditSystem.System. Every American would have access to affordable healthEvery American would have access to affordable healthcare coverage. Every American would get direct assistance either incare coverage. Every American would get direct assistance either inthe form of a tax credit for those who pay taxes, or a voucher forthe form of a tax credit for those who pay taxes, or a voucher forlowlow--income persons. That tax relief could be used in a way thatincome persons. That tax relief could be used in a way thatbest meets their personal needsbest meets their personal needs to offset the costs of insurance,to offset the costs of insurance,outout--ofof--pocket medical costs, or medical savings accounts. Tax reliefpocket medical costs, or medical savings accounts. Tax reliefwould be conditioned on the purchase of a basic, catastrophic plan.would be conditioned on the purchase of a basic, catastrophic plan.


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A Universal Tax CreditA Universal Tax Credit

ProposalProposalContinued. . .Continued. . . Tax Relief or Subsidies Would be Based on Need.Tax Relief or Subsidies Would be Based on Need.

All Individuals and Families Would Qualify for aAll Individuals and Families Would Qualify for aBasic Tax Credit.Basic Tax Credit. Beyond that the generosity of tax relief orBeyond that the generosity of tax relief or

government assistance would be based on need. More help wouldgovernment assistance would be based on need. More help wouldgo to lower income families or families with higher health carego to lower income families or families with higher health carecosts. The formula for a sliding scale of credits or subsidies: thecosts. The formula for a sliding scale of credits or subsidies: thehigher the health costs compared to income, the greater the taxhigher the health costs compared to income, the greater the taxrelief or subsidy.relief or subsidy.

Tie State Insurance Reform to Tax Reform.Tie State Insurance Reform to Tax Reform. RulesRulesgoverning the tax treatment of health insurance could begoverning the tax treatment of health insurance could be

accompanied by state insurance reform: reform of state markets;accompanied by state insurance reform: reform of state markets;state risk pooling, reform of underwriting to expand access,state risk pooling, reform of underwriting to expand access,including the elimination of exclusions for preincluding the elimination of exclusions for pre--existing medicalexisting medicalconditions.conditions.


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Average Tax Subsidy under Current Law andAverage Tax Subsidy under Current Law andThe Heritage Tax Credit Proposal in 2000:The Heritage Tax Credit Proposal in 2000:

Families with Family Head Age 65 and UnderFamilies with Family Head Age 65 and Under

$79

$2,207

$2,638

$2,064$2,005

$1,775$1,691

$1,985$1,926$1,886

$331

$599

$949

$1,338

$1,155

$1,871 $1,926

$2,170

$-

$500

$1,000

$1,500

$2,000

$2,500

$3,000

Less Than

$15,000

$15,000 -

$19,999

$20,000 -

$29,999

$30,000 -

$39,999

$40,000 -

$49,999

$50,000 -

$74,999

$75,000 -

$99,999

$100,000 or

More

All Families

Current Subsidy for Income Tax and FICA Tax Exemption

Tax Credit under Heritage Foundation Plan

a/ Estimates for families with a family head under age 65.

b/ Includes the value of the tax credit provided under The Heritage Foundation proposal.

Source: Lewin Group estimates.


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Diversity of Health Options. It would result in a variety ofDiversity of Health Options. It would result in a variety ofinsurance options, including plans sponsored by variousinsurance options, including plans sponsored by various

associations, professional and fraternal organizations,associations, professional and fraternal organizations,trade organizations and unions, and ethnic, religious ortrade organizations and unions, and ethnic, religious orfaith based organizations.faith based organizations.

The Creation of Large National Pools. EmploymentThe Creation of Large National Pools. Employment--basedbased

pools are good to excellent for large corporations; not sopools are good to excellent for large corporations; not sogood for small businesses. A national tax credit createsgood for small businesses. A national tax credit createsthe groundwork for national pooling.the groundwork for national pooling.

Impact of a Universal Tax Credit on theImpact of a Universal Tax Credit on the

Health Insurance MarketHealth Insurance Market


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Impact of a Universal Tax Credit on theImpact of a Universal Tax Credit on theHealth Insurance MarketHealth Insurance Market

Continued . . .Continued . . .

Inclusion of the Uninsured would introduce a DownwardInclusion of the Uninsured would introduce a DownwardPressure on Claims Costs.Pressure on Claims Costs.

The expansion of coverage to a largely younger and healthierThe expansion of coverage to a largely younger and healthierpopulation would lower average claims costs.population would lower average claims costs. More reliable financing and premium collection lowersMore reliable financing and premium collection lowers

administrative costs.administrative costs. More stable enrollment and the likelihood of longMore stable enrollment and the likelihood of long--term contractsterm contracts

which add to price stability and reduce churning in the market.which add to price stability and reduce churning in the market.

A Revolution in Insurance Consumer Relations. Since theA Revolution in Insurance Consumer Relations. Since theconsumer is henceforth a customer, carriers have aconsumer is henceforth a customer, carriers have apowerful incentive to retain this business. (Internetpowerful incentive to retain this business. (Internetexpansion is expected to intensify competition).expansion is expected to intensify competition).

Documents

Tax Reform as the Key to Successful Health Reform (Robert E. Moffitt)