The Problem with Tax Credits....

[dgoldenz]

I keep hearing that part of the proposal for the the health reform bill is that people making less than X amount of dollars will be given tax credits to offset the cost of insurance premiums. Did anyone in Congress bother to think that you only get your tax credit on April 15th?

So....let's say a family of 4 makes $50k, or about $40k after taxes. Their health insurance is now $1000-1500/month under the new plan and quickly rising, but we'll lowball it and say $700/month. Let's say they have a pretty good year and total medical expenditures is only $1,600 for the whole family. Our family of 4 now has to come up with $8,400 in insurance premiums (before any additional claims of course) for the year that they had not budgeted before (even though they should have, but this is America damnit!) before receiving their annual tax credit plus $1600 for the medical expenses for a total of $10k. How many families in this same situation across the US can afford to set aside 25% of their total income for health insurance before actually receiving their credit? 20%? 10%? 2%? Would be interesting to see what would happen if premiums rise to $2k/month.

I have many friends in their mid-20's who live paycheck to paycheck and could not afford to set aside even $200-300/month for health insurance, even if a tax credit was offered to them. I wonder how many people making under $50k are actually buying this idea once it's in force....

 

[HealthGuy]

All good points, but in the end it wont matter - tax credits won't pass.

 

[somarco]

Either nothing will pass, or we will get something that pleases no one. It's a real toss up right now.

The Washington Post says it is all about ego and bragging rights.

I agree.

Note how they refute the "45,000 die for lack of health insurance" as well as punch holes in the "affordable public health plan".

 

[Slade]

If it was structured like the earned income tax credit, the medical insurance tax credit could be taken during the year in the form of a reduced tax withholding on wages.

 

[ABC]

Its a good example.

I think the tax credits need to pay the majority of the premium based on coverage and income.

Not to split hairs but in your example the two kids are going to qualify for SCHIP. So the parents need to look at that option. Family of 4 making under $54,000 can put the kids on that plan. No one it talking about SCHIP.

You make a very valid point on how the tax credits could not have a real positive impact for most people.

 

[Winter_123]

The purpose of the proposed tax credits is at least two-fold. Yes, it is to help subsidize (and if there is a cash flow problem because the credits can only be taken at tax filing time then Congress can fix that in a flash by allowing premium charges to be set based on projected income and then letting the subsidy/tax credit flow back to the feds at tax time, or similar scheme).

But the other purpose of the tax credit/subsidy is to use the power of the government to make sure that you use your "free choice" to only choose only a plan that is subsidized, thereby ensuring that you will choose a approved government plan- even though that plan is with a private carrier (in other words, it is on the Exchange). You want a high deductible plan? Fine, go for it. No tax credit or subsidy though.

Change you can believe in.