How to Insure the Health of Millions of Uninsured Americans Immediately

Published September 1, 2001

Health insurance is expensive. Depending on a person’s age, location, and deductible, and on the level of managed care one is willing to accept—to name just a few of the most important variables—health insurance can cost hundreds or even thousands of dollars per year per person.

Not surprisingly, a large number of low- and even moderate-income persons cannot justify buying high-cost health insurance when life’s many other demands loom in front of them.

But much can be done right now to extend quality insurance to these people. Consider three somewhat disparate items:

Item #1. The vast majority of people, including those currently uninsured, would qualify for private health insurance if they could afford to buy it.

According to a recent study conducted by the Agency for Healthcare Research and Quality for the U.S. Health and Human Services Department, of the 42.5 million uninsured Americans, fewer than one million report their health as poor. In fact, fully 15.1 million uninsured Americans consider themselves in excellent health.

This is consistent with previous reports. For example, the Congressional Budget Office (CBO) concluded in 1991 that only 1 percent of all Americans are both uninsured and uninsurable.

It is clear that the vast majority of uninsured Americans could be insured in the private market without any new laws. If every state had a high-risk pool, even persons with major health problems would be eligible for high-quality private health insurance at heavily subsidized rates.

Item #2. Income is the most important factor determining whether a person buys health insurance or takes the chance of going without.

The lower the household income, the lower the likelihood of possessing health insurance, as shown in Table 1. These statistics are consistent with the fact that the high price of health insurance is a major cause of uninsurance. Lowering the cost of insurance by repealing expensive coverage mandates, for example, would reduce the number of people without health insurance.

Table 1
Household Income Percent Covered
< $25,000 75.7%
$25,000 to $50,000 83.4%
$50,000 to $75,000 90.0%
> $75,000 92.4%

The numbers in Table 1 are also consistent with the fact that lower-income workers are less likely to have access to employer-provided group coverage than higher-income workers. Many small businesses do not have the resources to pay their share of group health insurance. Also, part-time workers, temporary workers, and independent contractors are ineligible for employer-sponsored group plans.

To make the biggest impact on the uninsured, policymakers must focus on the group of people who do not work for big corporations, and whose incomes are so low that private health insurance is beyond their reach.

Item #3. Both federal and state governments have the resources to subsidize the purchase of private health insurance in a meaningful way.

Consider first how regressive the current federal tax system is with respect to health insurance. If you have group health insurance, your employer’s contribution is fully deductible as a business expense and it is a tax-exempt benefit for you. That is, the employer contribution is not reported as income to you and therefore is not subject to income taxation, FICA, or FUTA. Furthermore, the Internal Revenue Code exempts your share of the cost of the group plan from taxation through salary reduction plans.

So, the greater your income, the richer your benefit plan, the more the federal government subsidizes you. And since most states with income taxes use federal adjusted gross income (AGI) as the starting point for the calculation of their taxes, the states also subsidize your group plan.

But if you are a low-income worker with no group plan, you get no federal or state income tax break whatsoever for the purchase of private individual health insurance. You must buy the coverage with after-tax dollars.

The total tax subsidy for group health insurance will be $133 billion in 2001. For a mere $16 billion more per year, it is estimated some 19.5 million Americans could receive a very worthwhile tax subsidy.

Under the Fair-Care proposal now being considered by Congress, a worker without access to employer-provided plans would receive a refundable tax credit of up to $1,000, up to another $1,000 for a spouse, and an additional $1,000 for children under age 18.

For $3,000, a family of four would find dozens of comprehensive, major medical plans from which to choose.

The states, too, could do a great deal to help low-income workers buy health insurance. Insurance is mainly regulated by the states. Insurers pay premium taxes on all lines of business. Governing magazine has estimated that the states took in over $10.2 billion in premium taxes in 1999. Yet they spent only $839 million to regulate the insurance industry.

In other words, the states are reaping a windfall in excess of $9 billion each year on insurance premium taxes. If state policymakers are serious about helping uninsured persons in their states, they should start using excess insurance premium taxes to help low-income persons not eligible for Medicaid.


There is really no question that uninsured Americans should be helped to purchase private health insurance. There is also no question that many millions of uninsured Americans could be helped if federal and state governments would simply redirect tax surpluses and create tax incentives to purchase health insurance.

Virtually every uninsured American is insurable in the private market, and the rest can be in government-subsidized high-risk pools. Income (or more accurately, the lack of it) is the most important component in the health insurance purchasing decision. Changing our tax policy is the single best way to insure American families.

What we do not need are more government programs. Medicaid has become a financial sinkhole for the states. Everyone knows Medicare is absolutely unsustainable for many more years. Instead of fruitless plans to expand Medicaid or Medicare (and thereby compound the problem), governments should fix their regressive taxes, utilize premium tax cash cows to help low-income persons buy their own coverage, and then get out of the way.

Lee Tooman is vice president of government relations for Lawrenceville, Illinois-based Golden Rule Insurance Company.