WASHINGTON, Feb. 26 (UPI) -- Uninsured people who take advantage of federal tax credits to purchase private health plans could spend significantly more money on healthcare each year, although the option probably would not become widespread because it would raise total out-of-pocket costs, analysts said Thursday.
President George W. Bush has for the past three years proposed extending tax credits of up to $1,000 per person and $3,000 per family to use to pay health insurance premiums. The credits are income-related and phase out at $25,000 per year for individuals and $60,000 for families. According to U.S. government estimates, about 5 million people might take advantage of such credits, out of almost 44 million uninsured.
A study by researchers at the non-partisan Center for Studying Health System Change in Washington, published in this week's journal Health Affairs, looked at 1,992 families covered by nongroup insurance and predicted the cost of nongroup policies if purchased by the uninsured.
James D. Reschovsky, HSC senior health researcher, told United Press International the take-home message from the study is "that given what we know about low income peoples' demand for healthcare and health insurance, the fact that most would end up paying more out of pocket to take advantage of tax credits suggests that the take-up would be fairly low."
For example, based on the Bush proposal, the HSC study found on average, an uninsured person spends about $463 per year on healthcare. An uninsured person using the $1,000 tax credit, and purchasing a policy with an average premium of $2,820, would end up spending just over $2,500 that year on total out-of-pocket healthcare costs.
An uninsured family with children spends about $472 per year on healthcare, on average, but using the $3,000 tax credit and purchasing coverage would raise average spending to $3,003. An uninsured person in poor health spends on average $689 annually for healthcare, but using the tax credit for an insurance policy would increase his or her total annual spending to $3,475.
The question of purchasing health insurance is a matter of priorities, analysts said. For low-income citizens, the choice may be between food and rent or health insurance. For those better off, the decision may focus on health. A young and healthy person spending $463 each year on healthcare might not see the need to purchase insurance at that point in life.
"The idea of a healthcare tax credit is to discount the cost of health insurance so that people who are willing to purchase it -- it gives them an inducement, a discount so to speak," Devon Herrick, a senior fellow at the National Center for Policy Analysis in Dallas, told UPI. "So if they do want health insurance, they go ahead and make that purchase."
Reschovsky said another reason the low-income uninsured might not take advantage of the tax credits to purchase insurance is they already are covered by a social safety net of clinics or hospitals that provide care for the poor free of charge. The poor also have Medicaid to fall back on.
"So in essence they already have something of an insurance plan, if you will," he said.
Herrick commented that tax credits are not the end-all for the uninsured.
"Tax credits are one of many ways of reaching the uninsured, but I don't think anything would reach all of the uninsured," he said. "Tax credits will do the most good (for the segment) where people have, maybe, a family, moderate income, but still have enough income and they want health insurance. They just need a discount -- a little subsidy to make that affordable."
He noted about one-third of the uninsured in the United States have incomes over $50,000 per year per household -- so they simply might not be choosing not to spend their money on insurance, while an additional one-third at the low-income end of the scale qualify for Medicaid or other public assistance. People in between are better candidates for tax credits.
The HSC study also computed the numbers using more generous tax subsidies than proposed by the Bush administration. Researchers found although total, out-of-pocket spending was not as high, it nevertheless was more than an uninsured individual would spend without using the tax credit to purchase coverage.
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Ellen Beck's e-mail is [email protected]
