Magazine article Medical Economics

This Scheme May Help, but at Great Expense

Magazine article Medical Economics

This Scheme May Help, but at Great Expense

Article excerpt

Republicans and Democrats won't agree on much this year. But both parties seem to have reached a consensus on one thing: Manipulating the income tax code would be a nifty way to help the needy get health care. A bevy of Republicans and Democrats in Congress want to give poor people a tax credit for buying health insurance. President Clinton wants to give a tax credit to workers who purchase COBRA health insurance. On the campaign trail, presidential contender Al Gore has promised tax breaks of one kind or another to extend health care to people with low income, and George W Bush may consider them as well.

Unfortunately, tax deductions and credits won't do much to reduce the ranks of the uninsured. Americans already have a host of tax benefits available. An employer's contribution to a worker's health insurance premium doesn't count as taxable income, for example. An employee's contribution to his own insurance premium is taxexempt under certain circumstances. An employee can avoid paying some income tax by socking money for medical expenses into a flexible spending account.

A person can deduct medical expenses that exceed 7.5 percent of his adjusted gross income. And a self-employed person can deduct a large portion of the cost of his insurance premium.

In total, Americans get about $125.6 billion worth of federal tax subsidies annually, reports the National Coalition on Health Care. Still, despite these tax breaks, some 44 million people remain uninsured. "In fact," says the coalition, "68.7 percent of federal health benefits tax subsidies ... are going to families with incomes of $50,000 or more, even though this group accounts for only 36 percent of the population."

A tax deduction, which reduces taxable income, and a tax credit, which cuts the amount of tax owed, seem absurd if their purpose is to assist poor people. Forty-five percent of the uninsured don't make enough money to owe any income tax, and 90 percent of those who do earn enough are in the 15 percent tax bracket, according to the Kaiser Family Foundation. …

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