NCPA and AMA Lead the Way to Market-based Reform

Published April 1, 2001

President George W. Bush has told Congress he supports a market-based approach to health care reform.

In a bipartisan effort to help make that happen, legislators from both sides of the aisle have joined economists from the National Center for Policy Analysis (NCPA) and the American Medical Association (AMA) to discuss the growing support for measures that would help millions of uninsured Americans purchase private-sector health insurance.

Notes Rep. Jim McDermott (D-Washington), who serves on the Subcommittee on Health of the House Ways and Means Committee, “Regardless of political ideology, we must come together to figure out ways to decrease the ranks of the uninsured. The time has come to work together on a refundable tax-credit to purchase health insurance.”

The Inequity

A consensus is developing around tax credits as the proper solution for the uninsured population because it specifically addresses the tax inequity between employer-provided health insurance and individually purchased health insurance.

Tax law currently allows employees to pay their health insurance premiums out of pre-tax dollars, while those who purchase health insurance individually must do so with after-tax dollars. In effect, this means some people must earn nearly twice as much income before taxes to buy the same insurance as those who get a tax break, making individual health insurance unaffordable for many.

John Goodman, president of NCPA, explains, “The tax law penalizes people who purchase their own insurance. Generous tax relief could lead to an immediate and sharp decline in the uninsured population.” Goodman’s past research, including Patient Power, published by the Cato Institute in 1992, has helped ignite the tax-credit movement.

Dr. E. Ratcliffe Anderson Jr., executive vice president of the AMA, agrees with Goodman’s assessment of the need for generous tax relief. “The tax credit needs to be large enough to guarantee that health insurance is affordable for most people,” he notes.

While Anderson and Goodman agree in principle, the details of their preferred tax-credit plans differ. The AMA credits, for example, would be available only to persons who have a tax liability. In other words, the tax credit is not refundable: If you owe no taxes, you cannot take advantage of the plan. The AMA proposal, however, is progressive: If you are a low-income taxpayer, you would be offered a tax credit greater than that available to a higher-income taxpayer.

By contrast, Goodman thinks the tax credit should be the same for everyone, regardless of family income, and it would be refundable to those with no income tax liability.

Representative Nancy Johnson (R-Connecticut) will introduce enabling legislation that would provide tax-favored status for people who buy their own private health insurance. Johnson is thought to be leaning in the direction of the NCPA proposal.

For more information . . .

John Goodman’s book, Patient Power, is available for $4.95 from