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House Budget Committee Examines Tax Treatment of Health Insurance

On October 18, the House Budget Committee held a hearing to evaluate the tax treatment of health insurance and its impact on the debate over covering the uninsured.

The hearing held at the request of Rep. Paul Ryan (R-WI), the committee's ranking Republican member, who put emphasis on the fact that his vision for health care reform is "based on personal ownership and individual control of health coverage for everyone." Ryan expressed concern that the tax code presently reflects a partiality in favor of third party ownership of health insurance coverage. Ryan cited CBO data, which indicates that the existing tax exclusion for employer-sponsored health coverage costs the federal government around $3.5 trillion over ten years. Stating that this is not a wise or equitable tax policy, Ryan recommended that tax reforms are needed to help all individuals access health insurance that they would own and control themselves.

The hearing integrated testimony from two witnesses: Grace-Marie Turner of the Galen Institute and Leonard Burman of the Urban Institute. Turner recommended that a first step toward reform must be the creation of new allowances through subsidies, refundable tax credits, tax deductions, or a combination of these alternatives targeted directly to individuals to help them in purchasing the health coverage of their choice.

Burman said that a refundable tax credit would be an improvement over the present tax policy, chiefly if the credit were designed to provide the largest tax subsidy to low-income households. However, he also suggested that expanding public programs such as SCHIP, Medicaid, or Medicare might be more cost effective than tax subsidies in covering the uninsured.



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