Bush’s Tax Credit Plan for Medical Insurance Draws Mixed Response : Health: Analysts say some needy would benefit, but the program would not apply to the middle class or curb the high costs of care.

President Bush’s plan to provide tax credits of as much as $3,750 to help needy families buy medical insurance, the only tangible element announced so far in his long-awaited health care reform package, drew mixed reactions Wednesday as the Administration continued to thrash out the President’s plan.

Deferring to Bush, who is expected to unveil the full package early next month, Administration officials have steadfastly refused to provide any details of how the tax credit system would work.

But many analysts said the proposed tax credits may provide significant aid to some of the estimated 35 million uninsured Americans. They noted, however, that the credits would not apply to middle-class taxpayers and by themselves would do little or nothing to contain the upward spiraling costs that have turned health care into a powerful political issue.

“Simply putting more money into the system will not work, it will not solve the health care crisis--unless we also find ways to keep down costs,” said Robert D. Ray, the former Republican governor of Iowa who is now president of Blue Cross-Blue Shield of Iowa.

In his State of the Union address Tuesday night, Bush said he would propose “shortly” a comprehensive plan that would include measures to allow workers to change jobs without losing health coverage, enable small businesses to offer affordable insurance to employees, cut administrative costs through regulatory reform and restrict medical malpractice litigation.

But in specifically mentioning the $3,750 tax credit, the President put into the limelight a complicated issue that drew disparate reactions from experts and advocates.

The tax credits are aimed at people who buy their own medical insurance instead of receiving it as an employment benefit or from a government program such as Medicaid. The cost of such private insurance--up to $3,750 for families and $1,250 for individuals--would be offset against federal income tax liability. People whose tax liability is less than the credit apparently would receive government checks--or perhaps vouchers--for the difference, which they could use to buy health coverage.

One problem with this approach, said Ray, co-chairman of the National Leadership Coalition for Health Care Reform, is that millions of low-income Americans are not likely to be able to afford the cost of health insurance.

“It’s a cash-flow problem,” added Kenneth E. Thorpe, a University of North Carolina health policy analyst. The government payment would presumably come at the end of the tax year but the insurance premiums would have to be paid throughout the year.

Sources familiar with the Administration’s thinking said the White House is leaning toward granting the tax credits to families with annual incomes of up to nearly $20,000 and to individuals with annual incomes of about $10,000, both about 150% of the poverty level.

An important distinction to be made is whether this will be a tax credit per se or a voucher, Thorpe said.

With a tax credit, “you can really lose control in the sense that a lot of people who would take advantage may already have health insurance,” he said. And because their existing policies are likely to offer only catastrophic, bare-bones coverage, the tax credit is likely to cause people to drop them in favor of buying more elaborate coverage, Thorpe said.

On the other hand, he said, “you’d have more control with a voucher system in which people have to come in and apply.”

According to Thorpe, many individual policies today have monthly premiums of $300 or more, and so the President’s proposed tax credit for individuals would amount to about one-third of that average cost. He said studies suggest that a 33% subsidy might result in 4 million to 5 million newly insured--out of a potential pool of some 15 million adults.

The result, Ray added, “could be only a modest step.”

The tax credit proposal also is likely to result in significant changes in federal funding levels for Medicaid, since some recipients would qualify for the tax credit or a voucher, said Stuart M. Butler, a Heritage Foundation analyst.

Another critic of the tax credit plan was Dr. Harvey I. Sloane, a national health insurance advocate and former Democratic mayor of Louisville, Ky.

The notion of tax credits, he said, assumes a certain level of sophistication on the part of health insurance buyers that may be misplaced.

“It’s tough as an individual to go out and buy it,” said Sloane, director of Washington-based Health Care for America. “You almost have to be a CPA to understand all that stuff.”

In budget briefings Wednesday, Health and Human Services Secretary Louis W. Sullivan and other senior Administration officials repeatedly declined to spell out the details of the tax credit plan--or any other facet of the President’s health care reform package.

But sources familiar with White House deliberations said the tax credit program is expected to cost about $100 billion over five years and could be paid for by savings in Medicare and by new caps on federal contributions to Medicaid.

One proposal that now appears in jeopardy, because of opposition from congressional Republicans, is a new tax on some highly paid workers’ health benefits, sources said.

Moving Targets

As defense spending gradually declines, soaring expenditures for Medicare and Medicaid are expected to make health care the biggest singe segment of the federal budget besides Social Security by 1996.

Billions of dollars (Estimated ‘97) DEFENSE: 289 TOTAL HEALTH: 378 MEDICARE: 200 OTHER HEALTH*: 178 * Includes Medicaid and other federal health programs

Source: Office of Management and Budget