Foster Public-Private Coverage Solutions - What the Government Should Do - Help Those 'Squeezed Out'
To help those who currently have difficulty affording coverage, BCBSA recommends the government take the following actions:
Provide Four New Types of Tax Assistance
1. Tax Credits for Low-Wage Workers in Small Firms
The federal government should provide a refundable tax credit to small employers (2-50 employees) where at least 50 percent of employees earn less than 250 percent of the FPL. This recommendation would work in tandem with the next recommendation so that low-wage employees would have a refundable tax credit available to help with their share of the premium. The credit would be limited to firms with low-wage workers to avoid subsidizing those who would be able to afford coverage on their own.
Low-wage workers in small firms are less likely to have employer-sponsored coverage than workers in large firms. Some small employers cannot afford coverage. Even when employers can offer coverage, they may not offer it because they know their employees cannot afford their share of the premiums (Employee Benefit Research Institute (EBRI), 2003). About 38 percent of workers in small firms earn less than 250 percent of the poverty level, compared to 26 percent of employees in firms with 100 or more employees (EBRI, 2005).
Such tax credits are likely to have a significant impact on small employers' willingness to offer health coverage.
According to surveys (EBRI, 2003), 77 percent of uninsured small employers said they would consider offering a health plan if the government provided tax credits to help them pay for coverage.
How it might work
Michael owns a gasoline station with 10 full-time employees. He selected a health plan to offer to his employees but the monthly premium of $300 per employee far exceeded his budget, which allowed him to contribute $100 toward the cost of his employees’ coverage. Since he knew his employees could not afford to pay $200 a month, he cancelled his insurance application. With a 25 percent tax credit of the total premium, Michael would be able to offer coverage so that employees pay about 40 percent of the premium. Michael would pay $100, the tax credit would contribute $75 and the employee would contribute the remaining $125.
2. Tax Credits for Individuals Struggling with Healthcare Costs
A new kind of refundable federal tax credit would help millions of individuals and families who are hard pressed to pay their health insurance premiums because they do not qualify for government assistance, and health insurance premiums represent a large share of their income. Importantly, the credit would be available on an advanceable basis even to those who do not pay taxes.
These innovative tax credits would vary the amount of federal support depending on the cost of insurance and income. Middle- and lower-income individuals and families whose health insurance premiums exceed a certain threshold of their income (e.g., 5 percent) would receive a refundable tax credit. The credit would be adjusted by income and calculated based on the amount of their insurance premium that exceeds the income threshold.
Individuals with employer-sponsored coverage could use the credit to help pay for their share of the premium. Individuals without access to employer coverage could use the tax credit to purchase a policy on their own.
The intent of these credits is to assure that no one would have to pay a disproportionately high percentage of their income for health insurance premiums, whether they work in small or large firms, as part-time, full-time or temporary workers, or are self-employed.
How it might work
Sally is a single 45-year-old earning just under $14,000 per year working part-time in a department store. She is uninsured because her employer does not offer coverage to part-time workers and she cannot afford to pay the $200 monthly premium for an individual policy. Under this proposal, Sally would be eligible for a tax credit equal to $114 per month, reducing her cost to $86 per month.
John is a married father of two who earns $47,000 per year. He cannot afford the $400 monthly premium contribution for a family policy required by his employer. However, John could afford the $257 monthly contribution that would result if this tax credit were available.
3. Tax Credits for Those between Jobs
A refundable federal tax credit would help people who are between jobs - and who qualify for state unemployment assistance - pay their health insurance premiums. This tax credit would be offered through an expansion of the current tax credit available to those who have lost their jobs because of international trade policy. The tax credit of 65 percent of the cost of qualified coverage would help these people keep their healthcare coverage while they seek other employment.
The credit could be used to pay for the previous employer's policy under COBRA, the spouse's employer coverage or other coverage available through the state. In recognition of cash flow problems faced by people who are unemployed, the credit could be available to pay premiums upfront rather than claimed on an individual's tax return.
How it might work
Suzanne is a single unemployed computer programmer who lost her health insurance when her company eliminated her division last month. She did not elect COBRA coverage because she could not afford to pay the $300 monthly premium. Under this proposal, the 65 percent tax credit would lower her premium to just over $100 per month - and she would receive the subsidy on a monthly basis.
4. New Tax Deduction for Those Without Access to Employer Coverage
Currently, only the self-employed and individuals whose medical costs exceed 7.5 percent of their income may deduct the cost of health insurance premiums for federal income tax purposes. As a result, the vast majority of purchasers in the individual market must pay for coverage with no income tax advantage or deduction. This differs greatly from employees receiving coverage from their employer - where the value of the employer-provided health insurance is a tax-free benefit.
BCBSA recommends that individuals who lack access to employer coverage be allowed to deduct the full cost of individual health insurance when filing taxes. This deduction would only be available to those whose employer does not offer health insurance coverage and who cannot purchase coverage through their spouse’s employer.
How it might work
Susan is the office manager at the Blue Moon Diner and earns $40,000 per year. Her employer does not provide health insurance coverage. Right now, Susan purchases coverage in the individual market and pays $1,700 per year for the coverage. As a single individual with no other income or deductions, this proposal would allow her to deduct the full cost of her health insurance coverage, resulting in an after-tax premium cost of $1,275 per year.
Expand the Government Safety Net
Public program coverage should be extended to everyone with incomes at or below the FPL ($10,210 annually for individuals/$20,650 annually for a family of four in 2007) and not already eligible for Medicaid. This would ensure that the government can help those who are truly in need.
Currently, eligibility rules for Medicaid and the State Children's Health Insurance Program (SCHIP) vary by state and do not assure that all individuals below poverty are covered. Those most frequently ineligible for coverage are childless adults.
How it might work
Tom is a single 57-year-old former textile worker whose mill has closed. He can now only find part-time work earning $8,500 per year. He is uninsured because he does not qualify for Medicaid (despite the fact that his income is below the FPL), and he is not eligible for employer coverage because of his part-time status. Under this proposal, Tom would be eligible for public coverage.
Provide Three Types of Targeted Grants to States
1. Help States Assure Access to Coverage for All Individuals
All states should have mechanisms to ensure that individuals with serious medical conditions have access to affordable and meaningful health insurance, while ensuring stable and competitive individual markets. A majority of states already have such mechanisms in place, but seven states do not. High risk pools play a key role in ensuring access in over 30 states.
Current federal support for state high risk pools should be made permanent and should cover at least 50 percent of pools' annual operating losses. These high risk pools should be required to ensure affordable premiums, and state funding sources should be broad-based so that the burden does not fall mainly on individuals and small employers.
To ensure that all individuals with serious medical conditions have access to coverage in the individual market, all states should be required to have high risk pools, unless they already have an alternative mechanism in place. Federal grants should be made available to help states establish risk pools to meet this requirement.
2. Help Individuals and Families Through Collaborative Private Initiatives
A new federal grant program would encourage innovative partnerships between insurers, physicians and hospitals to develop low-cost insurance products for uninsured individuals and their families. These partnerships should use new benefit design options, discounted fees or other methods to provide lower cost options.
Partnerships already created between Blue Cross and Blue Shield Plans and their local physicians are examples of initiatives to reach out to the uninsured.
How it might work
John is a 42-year-old married father of two children who started his own graphics design consulting business last year in Montana. He earns about $33,000 per year and cannot afford the $469 monthly premium for a non-group policy. Through an innovative product, Blue Care, developed by a statewide coalition of physicians, hospitals and Blue Cross and Blue Shield of Montana, John would qualify for family coverage that costs less than $289 per month. The lower costs are the result of deep discounts that were negotiated with hospitals and physicians.
3. Help States Develop Tailored Initiatives
Recognizing that the states may have unique uninsured populations, a new federal grant program would allow states to develop their own initiatives. For example, some states might want to develop a special strategy to improve coverage for migrant workers, while others may want to focus on a rural strategy or improving support for community health centers.
How it might work
A series of small towns located in California would like to address the healthcare needs of migrant workers who seasonally move through their communities. Although each town has committed to fund the program on an ongoing basis, they lack the start-up funds to initiate the project. Under this proposal, federal grants would be available to jumpstart this program.
