Sen. Tom Daschle (D‑S.D.) recently announced a $3 billion to $4 billion per year proposal that would subsidize 90 percent of private health insurance premiums for families with annual incomes up to twice the federal poverty level and provide smaller subsidies for wealthier families — those that earn up to $75,000 per year. Another proposal unveiled by Sens. Edward Kennedy (D‑Mass.) and John Kerry (D‑Mass.) would establish federal-state-private partnerships in which states, using federal dollars, would purchase private “child-only” coverage at an annual cost of about $9 billion. Premiums would be fully covered for families with incomes up to 185 percent of the federal poverty level and completely phased out for families above three times the poverty level — over $45,000 for a family of four. Sen. Arlen Specter (R‑Penn.) offered a similar proposal that would completely phase out the credit at 235 percent of the federal poverty level over $35,000 for a family of four — at an annual cost of $4.8 billion.
The catalyst for KidCare is the supposed explosion in the number of children lacking health insurance and, therefore, presumably receiving inadequate care. However, in reality, the percentage of uninsured children rose less than 1 percent from 1990 to 1995, from 13.0 percent to 13.8 percent — hardly an explosion. Of the 10 million children who lack health insurance, 3 million are eligible for, but not participating in, Medicaid, the federal-state health insurance program that covers children of families whose incomes fall below 130 percent of the poverty line. It is estimated that another 1.5 million uninsured children live in households with incomes over $40,000 per year. Moreover, most uninsured families lack insurance for only a brief period. Over half of all uninsured Americans go without insurance for less than six months. Furthermore, KidCare proponents fail to distinguish between health insurance and access to health care.
Lack of health insurance does not necessarily preclude children from obtaining health care. Federal, state, and local governments operate countless programs to promote health. Health services for poor children are specifically targeted by dozens of those programs, including the Maternal and Child Health Services Block Grant to the States, the Residents of Public Housing Primary Care Program, Childhood Immunization Grants, and
Emergency Medical Services for Children. If a KidCare proposal is signed into law, will the sponsoring senators be willing to eliminate such federal health care programs, or will they continue on the historic path of jacking up the amount of money taxpayers spend on national health care programs?
The answer for uninsured children — indeed for uninsured Americans of all ages — lies not in a massive and expensive new federal intrusion into the health care system but in changing the tax treatment of health insurance. Currently, employer-provided health care is purchased with tax-free dollars, while workers who purchase health insurance on their own must do so with after-tax dollars. That difference in tax treatment creates a disparity that effectively doubles the cost of health insurance for people who must purchase their own. For example, a small business might purchase each employee a $4,000 health insurance policy using tax-free dollars. A person working for a small business that offers no health insurance would have to earn over $8,000 before taxes to pay for the same $4,000 policy. As a result, Americans have been increasingly driven to pay for their health care through third-party insurers and to purchase insurance through their employers. That, in turn, has led to rising health care costs and made it harder for Americans without employer-provided insurance to obtain coverage.
Congress took the first tentative step toward alleviating that problem last year by enacting a limited pilot program of medical savings accounts under which individuals may spend pretax dollars, drawn from their own personal accounts, on routine health care expenses. One of the best things Congress could do for children this year would be to expand that program.
For proponents of KidCare, the issue is as much a political as a medical one. They want to force members of Congress to vote on the emotionally charged question “Are you for or against health insurance for children?” As one union official put it, “We want to use KidCare the way we used Medicare last year.” Supporters of free-market health care reform should not get caught in that trap. There are better alternatives.
Supporters of free-market health care reform cannot afford to debate socialized medicine issue by issue. They must put forward a bold and comprehensive program of their own, one firmly based in free markets and individual choice. Changing the tax treatment of health care would be a good place to start.