Private Health Insurance

Estimates of Expanded Tax Deductibility of Premiums for Individually Purchased Health Insurance Gao ID: HEHS-98-190R June 10, 1998

Pursuant to a congressional request, GAO provided information on the: (1) potential tax benefit that individuals without employment-based health coverage would receive if the cost of their individually purchased health insurance were fully deductible from their federal income taxes; and (2) characteristics of the non-elderly population by their federal marginal tax bracket and health insurance status.

GAO noted that: (1) it provided information on the number of potentially eligible individuals and the amount of the benefit they would have received in 1996 if the cost of individually purchased health insurance premiums had been fully deductible from their federal income taxes; (2) in that year, an estimated 33 million non-elderly individuals would have been eligible for this deduction if it had been available, if they purchased individual health insurance, and if they itemized deductions for their income tax returns; (3) most of these individuals were uninsured and more than two-thirds with taxable income were in the 15-percent tax bracket; (4) for single people with no dependents in 1996, this bracket represented those with taxable incomes of $24,000 or less; (5) married couples with $40,100 or less and heads of households with $32,150 or less were also represented by this tax bracket; (6) however, uninsured individuals would have benefited from an expanded tax deduction only if they had purchased individual health insurance; (7) moreover, those who purchased individual health insurance would have benefited only if they itemized tax deductions rather than claimed a standard deduction; (8) while an expanded deduction for health insurance expenses could encourage more people to itemize deductions, only 29 percent of all tax filers itemized in 1995; (9) tax filers in the lower income groups are less likely to itemize, with only 5 percent of those with adjusted gross incomes of less than $20,000 itemizing; (10) however, nearly 15 million people who either had individual insurance or were uninsured had no tax liability and would not have benefited from such a tax deduction; and (11) in addition, about 6 million people who were uninsured or purchased individual insurance did not file tax returns in 1996.

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