Opening Statement of the Hon. Fortney "Pete" Stark, M.C., California

Hearing on the Nation's Uninsured

April 4, 2001

Madame Chairwoman, thank you for having today's hearing. I hope it is the first of many on this important issue.

We hold the disgraceful distinction of being the sole industrialized country that fails to assure access to health insurance for all its citizens. With record surpluses at our disposal, it is inexcusable to not make a major down-payment toward health insurance for all.

The majority of the uninsured have incomes under 200 percent of the federal poverty level ($17,180 for an individual, $35,300 for a family of four). While approximately 80 percent of the uninsured are either workers or dependents of workers, more than 70 percent of uninsured workers lack access to job-based coverage. According to a 1999 Commonwealth Fund study on workers' health, most uninsured employees work for an employer that does not offer insurance or they are ineligible for the insurance that is offered, often because they work part-time or have not worked at the firm long enough. Just 12 percent of eligible uninsured workers actually decline coverage.

The combination of income and workplace variables is particularly harmful to low-wage workers. For example, only 55 percent of low-wage workers who earn $7 or less per hour are even offered coverage, compared to 96 percent of workers who earn more than $15 per hour. In the age of incrementalism, successful efforts to increase health insurance rates must take all of these issues - and more -- into consideration.

There has been a lot of discussion in the past few years about using tax credits to expand access to health insurance. It seems to be particularly attractive in certain circles this year. The good news is that expanding access to health insurance is back on the national agenda. I welcome the discussion. The bad news is that even carefully constructed tax code proposals will fail to achieve the goal of increased coverage in the absence of significant financial resources and stringent government regulation. I believe expanding existing public programs would bring the biggest bang for the taxpayer's buck.

Don't get me wrong. We can theoretically construct a refundable tax credit proposal that would result in a meaningful increase in health insurance coverage. But, if we are not careful, using the tax code to try to improve access to health insurance could result in Congress paying lip service to the issue of the uninsured while spending billions of dollars on tax breaks for those who already have insurance.

As I have mentioned, using tax credits to improve health insurance coverage is not cheap and it requires heavy government regulation to be effective. There are at least four required elements of an effective health insurance tax credit proposal, and I would argue that no plan introduced to date meets all the criteria.

1. First, tax credits must be refundable. More than half of the uninsured either pay no taxes or have tax liabilities below the levels proposed by most tax credit proponents. If the credit isn't refundable, it's simply a hollow promise for these individuals. President Bush campaigned on a refundable tax credit, and Republicans and Democrats alike in Congress have sponsored legislation that use refundable tax credits.

2. Second, the tax credit must be large enough to subsidize a significant portion of the cost of a meaningful policy. A typical individual policy can cost $2,400 and the average family policy in 2000 was nearly $6,400. Last year, the average employer contribution was 74 percent of the premium. Even at this level, many low-wage workers are unable to afford coverage for which they are eligible. Thus, in order to put coverage within reach of the targeted population --low-income families who must balance competing needs with limited funds - the tax credit should cover at least 75 percent of the cost. Indeed, some research has shown that a subsidy in excess of 80 or 90 percent is needed to induce low-income families to participate. A tax credit of $2,000 or even $3,000 does little to put a $6,400 policy within reach of a family living on $30,000 a year. Finally, it is important that the coverage be comprehensive. Using an inadequate tax credit to buy an inadequate high-deductible policy simply moves individuals and families from the uninsured column to the under-insured column. This will exacerbate an undesirable trend already percolating.

3. Third, there must be a mechanism to deliver the tax credit directly to the insurer or make sure that the funds are available more consistently than once a year. The costs of purchasing insurance are generally incurred on a monthly basis. Lower income families will not be able to front the cost of the full premium throughout the year with the promise of a refund the following April. However, fewer than one percent of individuals eligible for a monthly EITC option participate because they fear unpredictable income fluctuations will result in their owing the government at the end of the year. In addition, it is administratively cumbersome for a beneficiary to receive the credit and pass it on. The policy should allow for the credit to be transmitted directly to the insurer or employer.

4. Fourth, there must be significant regulation of the health insurance marketplace. Any size tax credit is still worthless if the marketplace won't allow someone to purchase a policy. Without creating a marketplace that assures the offering of community-rated policies without any medical underwriting, millions of uninsured individuals with pre-existing health conditions will remain locked out of the private marketplace even with a sizeable tax credit in their pocket. This is a vital, but often overlooked component.

These are the tools by which I will measure tax credit proposals. I have yet to see a proposal this year that meets the test. I urge my colleagues to use extreme caution when considering tax credit proposals as a real means to expand health insurance coverage. We need solutions, not lip service.

Our job is to make comprehensive insurance more affordable and accessible to every uninsured individual and family. An argument can be made for increasing the equity of our current tax subsidies, but with the surplus fading fast, we cannot afford to focus scarce resources on those who are already covered. Our efforts should focus on methods proven to help low-income populations obtain insurance. Expansion of public programs, and mechanisms to improve beneficiary outreach, enrollment and retention are key approaches that deserve at least as much consideration and funding as changes to the tax code.