AMA Seeks Tax Credits for Uninsured

Says switch to individual policies would cover 26.4 million

TUESDAY, May 11, 2004 (HealthDayNews) -- Most of America's 43 million uninsured could finally gain full medical coverage if Washington offered them tax credits specifically earmarked for health insurance, say top officials at the American Medical Association.

The AMA, the largest organization representing the nation's doctors, advocates abolishing the current tax exclusion for employer health benefits and replacing it with tax credit vouchers that the working poor could use to purchase individual insurance packages.

"The AMA proposal allows people to select their own insurance. It allows them a mechanism so they can afford the insurance with the refundable tax credit," said AMA President Dr. Donald J. Palmisano. "It puts people in control of their own destiny."

The health-care funding proposal, written by Palmisano along with two experts at the AMA's Center for Health Policy Research, appears in the May 12 issue of the Journal of the American Medical Association.

Election year polls continue to rank health care as a top priority for U.S. voters. As costs for drugs and medical procedures soar, more and more low-income and unemployed individuals find themselves left out in the cold when it comes to medical coverage.

Under the current federal tax system, health insurance benefits provided to individual workers by their employers are excluded from taxation. However, this system "gives the big money to the wrong people," said Mark V. Pauly, a health-care system analyst at the University of Pennsylvania's Wharton School.

"Higher income people -- obviously they have higher tax rates -- they save more, and they are also more likely to have employment-based health insurance anyway," he pointed out.

In his editorial on the proposal, Pauly agrees with Palmisano that money saved from abolishing this tax exclusion might be better put to use as a tax credit for poorer Americans.

According to the AMA, the current tax subsidy system costs the federal government $101 billion each year. But while a family making $100,000 per year receives about $2,780 in tax breaks, a family taking in $10,000 or less receives just $102 per year. "These are people who are working, paying their rent, sending their kids to school, feeding their families," Palmisano said. "But when it's all over they don't have enough money to buy insurance."

Under the AMA plan, money would be diverted from the current system toward a system of tax credits for low-income taxpayers --"a refundable tax credit, a voucher, given at the beginning of the year," Palmisano explained. Individuals could then shop around for the best value health plan they could find.

The AMA shies away from attaching any particular dollar figure to the amount of the voucher, only stating that the amount should be "sufficient to induce low-income individuals to purchase coverage." However, in one hypothetical scenario, in which single recipients were given a $2,000 tax credit and families $4,000, the AMA envisions the plan lifting 26.4 million Americans into full medical coverage.

But would individual consumers have the buying power of today's big corporations? Palmisano believes mechanisms would emerge to lower prices for individual policyholders. "There are many ways they can join together, whether it be voluntary purchasing cooperatives, Internet opportunities, health savings accounts," he said. "You'd get the benefit of being in a group even though individually you own the policy."

Flexibility and choice is a cornerstone of the AMA proposal, Palmisano said. "Individuals get multiple choices here. You could still have employer-provided insurance, but instead of a defined benefit it could be a defined [employer] contribution, and individuals would then have an array of choices," he explained. "You could get an HMO, PPO, health savings account, with high deductibles coverage over that. It'll help make the individual a prudent purchaser of health care."

Consumers who purchased a policy would also gain "guaranteed renewability," meaning that their insurance would continue even if they lost their job or got sick or injured.

"We get everybody to be covered at the front end when they're healthy," Palmisano explained. "If they do get an illness that's a chronic illness, they would still get guaranteed renewability."

Pauly says that, ideally, the new tax credit system would flood the market with consumers eager to buy into what was once a high-end "boutique" market. "It has the potential of making the non-group market more of a mass market," he said. "As we know with most other products, when the market expands it actually improves quality and maybe even lowers the price."

Palmisano said the AMA's tax credit proposal "meshes" with similar initiatives outlined by President Bush in this year's State of the Union address. He and Pauly expect resistance to the idea, rooted in ideological disputes that have stalled the health-care debate for decades.

"On the liberal-Democratic side, there are people who just don't trust the private market," Pauly said. "My interpretation of the political process so far is that no health insurance plan has gotten anywhere."

However, Pauly remains hopeful that, even in an election year, some progress can be made. "We have to get this political show on the road," he said. "We have to start thinking more seriously and start to help the market to be more creative about what these new [health insurance] products could be."

More information

This is "Cover the Uninsured" week. Read more about it here. You can also learn more about insurance or the lack of it at the Henry J. Kaiser Family Foundation.

SOURCES: Donald J. Palmisano, M.D., J.D., president, American Medical Association, Chicago; Mark V. Pauly, Ph.D., Department of Health Care Systems, The Wharton School, University of Pennsylvania, Philadelphia; May 12, 2004, Journal of the American Medical Association
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