Expanding the Health Care Tax Credit

The Trade Adjustment Assistance (TAA) Act of 2002 set an important precedent for bipartisan progress on health coverage. It established a tax credit for "transitional" health insurance, the Health Care Tax Credit or HCTC. It mapped out a set of health plans -- including COBRA coverage from ex-employers -- on which the tax credit could be used (and on which Republicans and Democrats could agree).

However, the only people eligible for the HCTC's 65 percent credit were a small group of unemployed workers displaced by foreign trade, and an equally small group of retirees whose pensions were taken over by the government. In total, about 250,000 souls.

Now, Senators Chuck Grassley and Max Baucus have taken the next step: expanding the HCTC to all unemployed workers. Their bill, the "Health Care Tax Credit Expansion Act of 2003" was introduced on October 1.

According to the Joint Committee on Taxation, the Grassley-Baucus proposal would cover an additional 1.6 million people; a modest but important step on the path toward coverage for the 43.6 million uninsured.

Earlier this year, Congress voted to reserve $50 billion over the next ten years for health coverage. At an estimated cost of $34 billion, the Grassley-Baucus bill would fit easily within that budget.

Importantly, the Grassley-Baucus tax credit is refundable, which means that people with low-incomes who otherwise would not face any income tax liability could still get the funds. It is also "advanceable," which means that people wouldn't have to wait until the end of the tax year to file for the credit -- they could receive the funds "in advance" as they paid their health insurance bills on a month-to-month health basis.

There is one technical fix that would make the Grassley-Baucus bill even more attractive. The bill should allow unemployed workers to keep the HCTC for several months after they have found a new job (and stopped receiving unemployment benefits). That way, people would not have to fear immediately losing their health coverage when they took a new job. This would make the bill slightly more expensive, but it would still fit within the $50 billion limit

There may be other changes to the law that members of Congress might wish to see. For example, House Republicans have proposed to make individual health coverage a more prominent coverage option for HCTC users.

However, Congress has only a few weeks left in before it adjourns for the year, and the $50 billion in funding expires. That leaves little time to consider extensive modifications of the HCTC law this year. It might be best to let well enough alone in 2003, and stick with the parameters of the original TAA compromise.

Senators Grassley and Baucus should be commended for their continuing efforts to find bipartisan solutions on the uninsured. Hopefully, Congress will agree to expand the HCTC as an affordable "next step." Additional expansions of eligibility or health plan options under the HCTC can be considered as part of subsequent steps on the path toward health coverage for all Americans.

Links:
Centrists.Org From Transitional to Universal Health Coverage (September 24, 2003)

Internal Revenue Service Health Care Tax Credit (HCTC) Overview

Centrist Policy Network Transitional Coverage Resource Page (contains links to legislative language of the Grassley-Baucus bill and revenue estimates from the Joint Committee on Taxation)

Centrists.Org A Bipartisan Compromise on Transitional Health Coverage (revised 4/28/2003)

Heritage Foundation State Opportunities to Provide Affordable Health Coverage Under the Trade Law by Nina Owcharenko and Edmund Haislmaier (February 25, 2003)

Economic and Social Research Institute Health Insurance for Laid-Off Workers, A Time for Action by Lynn Etheredge and Stan Dorn (February 2003)

Posted by Jeff Lemieux at October 6, 2003 07:39 PM