Private Health Insurance

Estimates of a Proposed Health Insurance Tax Credit for Those Who Buy Individual Health Insurance Gao ID: HEHS-98-221R July 22, 1998

Pursuant to a congressional request, GAO provided information on the potential tax benefit that individuals without employment-based health coverage would receive if a tax credit were available for the premiums of individually purchased health insurance, focusing on the number of people who would possibly benefit from a tax credit and the potential value of the tax credit as proposed in H.R. 539.

GAO noted that: (1) nearly 40 million nonelderly Americans who were uninsured or purchased individual insurance in 1996 would have been eligible for the proposed tax credit if it had been available and they had purchased health insurance in the individual market; (2) those eligible for the proposed tax credit could have reduced the net cost of their health insurance by as much as 30 percent; (3) the net reduction in the cost of health insurance, however, would have been less than 30 percent for many of those eligible, particularly for those buying higher-priced health insurance whose income and social security tax payments would have been insufficient to offset the full value of the tax credit; (4) in addition, about 10 percent of those eligible would have received only a partial tax credit because their adjusted gross income (AGI) would have been too high for a full tax credit and within range where the credit would be phased out; and (5) about 8 million nonelderly Americans who were uninsured or purchased individual insurance would not have been eligible for the tax credit because their AGI would have exceeded the maximum level set by the bill.

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