deductible as a business expense; this subsidy also is not considered taxable income for employees. In addition, tax benefits are available to individuals who purchase nongroup private insurance directly from insurers (referred to as “individual insurance”) if the person is self- employed or has premium and medical expenses combined that exceed 7.5 percent of his or her adjusted gross income. However, private insurance is not accessible to everyone. Some workers, including those working for small firms or in certain industries such as agriculture or construction, are less likely to be offered employment-based health coverage. Health insurance may also be expensive and potentially unaffordable for those paying the entire premium individually rather than receiving employment-based coverage where employers typically contribute to some or all of the cost. In addition, while all members of a group plan typically pay the same premium for employment-based insurance regardless of age or health status, in most states individual insurance premiums are higher for older, sicker individuals than for young, healthy individuals, potentially making them unaffordable. The Health Insurance Portability and Accountability Act of 1996 (HIPAA) provided several important protections to improve the availability of private health insurance, particularly for individuals changing jobs or with preexisting health conditions. HIPAA included guaranteed access to coverage for those leaving group coverage and for small employers; however, it did not address issues of affordability. In addition, many states have enacted reforms that guarantee access to health insurance for certain high-risk individuals and small groups and that sometimes limit the premiums these persons and groups pay. While these federal and state private insurance market reforms provide important protections for certain individuals and groups, recent research finds little, if any, effect from these reforms on overall private insurance coverage rates. higher eligibility standards as long as they are within federal guidelines. SCHIP was established in 1997 to give states the choice of receiving enhanced federal funding to cover additional low-income children who do not qualify for Medicaid, generally those in families whose incomes are up to 200 percent of the federal poverty level. Unlike Medicaid, SCHIP is not an entitlement program, and states can halt enrollment once budgeted funds are exhausted. As of September 2000, HCFA reported that 3.3 million children were enrolled in SCHIP. Although Medicare primarily insures most Americans 65 years or older, it also provides coverage for some nonelderly individuals who are disabled or have end-stage renal disease. Additional tax incentives proposed to encourage people to purchase health insurance vary in terms of who would be eligible, whether the tax incentive is provided to individuals or employers, and whether the incentive is a deduction that reduces taxable income or a credit that reduces total tax liability. The proposals share challenges that will affect their success in covering newly insured individuals. These challenges include (1) making the reduction in premiums large enough to induce uninsured persons to purchase health insurance or to encourage employers to offer coverage or increase their contributions to premiums, and (2) timing a subsidy to be available for low-income individuals at the time they pay their premiums, rather than after the end of the tax year. their taxable income—potentially important if the employee must pay most or a large share (more than half) of the plan’s premium, since these employees are more likely to turn down employment-based coverage. A tax deduction may be limited in its ability to induce uninsured individuals to purchase private insurance because most uninsured individuals do not earn enough for a deduction to make any or a significant difference in their net health insurance costs. In 1999, about 40 percent of the uninsured either did not file income tax returns or were in the 0 percent marginal tax rate and would not benefit from the deduction if they purchased individual insurance. Nearly 50 percent of the uninsured were in the 15 percent marginal tax rate, which, if they purchased qualifying health insurance, would allow them a 15 percent net reduction in their insurance cost. Analysts have generally agreed that this level of reduction would encourage few additional uninsured individuals to purchase health insurance. The remaining 10 percent of the uninsured, based on their marginal tax rates, would be eligible for a 28 to nearly 40 percent net reduction in the cost of their health insurance. While this level of reduction in net premiums may induce some individuals in higher tax brackets to purchase health insurance, it is less than some analysts have concluded would be necessary to lead to a widespread increase in coverage. For example, the Congressional Budget Office (CBO) reported that tax subsidies “would have to be fairly large—approaching the full cost of the premium—to induce a large proportion of the uninsured population to buy insurance.” higher-income individuals could be eligible for a partial credit or no credit. Because more than half of uninsured individuals would not have had enough income tax liabilities in 1999 to receive the full credit amount, some proposals would make the credit refundable so that more low- income tax filers and a number of those who would not otherwise file could receive a larger portion or all of the amount. The number of individuals eligible for a tax credit would vary depending on the income thresholds specified in a proposal. For example, we estimate that in 1999 22 million uninsured Americans were in families that potentially would have been eligible for a tax credit available to single tax filers with $30,000 in taxable income and joint or head-of-household tax filers with $50,000 in taxable income. A recent study estimated that a tax credit of $1,000 for single coverage and $2,000 for family coverage with these taxable income thresholds could enable about 4.2 million—or nearly 20 percent of eligible individuals—to become newly insured. If income eligibility levels were twice as high, we estimate that 3 million additional uninsured individuals would have been in families potentially eligible for the tax credit, and the study estimated that a credit at this higher income eligibility level would result in another 0.5 million newly insured. a high premium of $7,154 for a 60- to 64-year-old smoker in urban Illinois. Thus, in some states, a $1,000 tax credit could represent all or most of the premium for a young, healthy male or for someone purchasing a plan with a high deductible or limited benefits. On the other hand, a $1,000 credit could represent a small proportion of the premium for a comprehensive health plan for an older person or someone with existing health conditions. For many individuals, a $1,000 tax credit would likely represent less than half of a typical premium. A tax credit’s ability to induce uninsured individuals to purchase coverage will also depend on the timing of the credit. Some low-income individuals who want to take advantage of a credit to purchase health insurance may find it difficult to do so if they must pay the premiums up front but cannot receive the credit until the following year after filing their tax return. To alleviate this problem, some proposals would allow advance funding of a credit, so that eligible individuals could receive the credit at the time they purchase the health insurance. There is limited experience with advance payments of tax credits for individuals, and establishing an effective mechanism could be administratively challenging. Procedures and resources to assess eligibility based on partial-year income information would need to be available nationwide. In addition, efficient and equitable procedures for end-of-year reconciliations and recovery of excess payments would be necessary. insurance because they are required to spend money up-front to get the tax credit, whereas EITC is an addition to income, not a reimbursement for an expense. To encourage more employers to offer coverage, some proposals would provide a tax subsidy to small firms or those with low-wage workers that often do not offer health insurance to their employees. Although at least 96 percent of private establishments with 50 or more employees offered coverage in 1998, only 36 percent of private establishments with fewer than 10 workers and about 67 percent of private establishments with 10 to 25 workers offered coverage. Also in 1998, among private establishments in which half or more of the workers were low-wage, only 31 percent offered health insurance to their employees, while other private establishments were nearly twice as likely to offer health insurance. that in 1996 37 percent of workers earning less than $7 per hour were offered coverage but turned it down, while only 14 percent of workers earning $15 or more per hour turned down coverage. Many proposed or already available state-offered tax credits for employers provide only a temporary subsidy for the first few years an employer offers coverage. This may limit their potential for inducing employers to initiate and keep offering coverage. Experts we have consulted in our private insurance work told us that small employers are not likely to begin offering health insurance if they do not believe they will be able to do so permanently. Some proposed employer tax credits are linked to small employers obtaining health insurance through a purchasing cooperative. We reported last year that several existing cooperatives gave small employers the ability to offer a choice of plans, but typically at premiums similar to those available outside of the cooperative. We also reported that most current cooperatives represented a small share of their local small group market (5 percent or less) and several had recently been discontinued or faced declining insurer or employer participation. Some analysts suggest that small employer purchasing cooperatives could be more effective in making coverage more affordable if they represented a larger share of the market. A significant employer tax credit linked to a small employer purchasing cooperative might stimulate participation and create larger market share, making them better able to secure lower-cost coverage for participants. not currently eligible (such as childless adults) or raise income and asset eligibility standards. Another proposal would allow some near-elderly persons to buy in to Medicare. But many low-income people who currently are eligible for these public programs have not enrolled. Therefore, state outreach efforts to low-income individuals are key to the success of current and proposed programs. Despite mandatory and optional state Medicaid expansions and the implementation of SCHIP in recent years, millions of low-income children and adults remain uninsured.