Policy Documents

How Health Care Tax Credits for Families Would Supplement Employment-Based Coverage. Summary

Stuart M. Butler, Ph. D. –
March 16, 2001

In this Heritage Foundation Backgrounder, the author examines a number of legislative proposals on Capitol Hill and how they would provide uninsured workers with a tax credit to help them purchase health insurance. The most recent was introduced on March 14 by Senators John Breaux (D-LA) and James Jeffords (R-VT). President Bush has proposed a similar credit. Such proposals have prompted some to argue that a better way to increase the rate of insurance would be to subsidize employers. Supporters of this view maintain that employment-sponsored health plans are popular and practical, and that subsidizing employers rather than families would therefore be a better way to cover uninsured families. This view, however, fails to recognize the inherent limitation of traditional employer-sponsored insurance. While it usually does make sense for large, sophisticated employers to sponsor insurance-in other words, to arrange coverage-it is administratively costly and inefficient for small employers to try to sponsor health plans. Small firms also can rarely offer plan choices to their employees and tailor coverage to worker needs. Subsidizing these small employers would not overcome these drawbacks.