The tax proposals are intended to extend tax benefits currently available only to workers through their employer-sponsored health plans to those who are not offered health insurance as an employment benefit. Employer-based insurance is not counted as taxable income for workers and is fully deductible for employers. Tax subsidies for health insurance range from tax deductions for the purchase of health insurance to tax credits targeted to a particular population and set at a specific dollar amount. Tax credits are by far the most popular approach in Congress. Tax credits also figure in President Clinton's plan to reduce the number of the uninsured and in a health proposal Vice President Al Gore has taken on the campaign trail.
Tax credits can be either refundable or nonrefundable.
A nonrefundable credit simply lowers the amount of tax owed, while a refundable credit is paid to an individual even if he or she owes no taxes. Just how well tax subsidies would work toward extending health insurance to those now without coverage remains in question. But if a tax credit plan is pursued by policymakers, said Dr. Gruber, a refundable tax credit would prove the most effective. Economist Paul Fronstin, PhD, of the Employee Benefit Research Institute, is also pessimistic about the benefits of tax credits. A tax credit could have an impact no one wants, Dr. Fronstin warned.