AMA meeting: AMA clarifies plan on tax credits for insurance
■ Delegates rejected an attempt to keep tax-free HSA contributions along with tax credits.
By Doug Trapp — Posted July 7, 2008
Chicago -- At a time when the presidential election has again put health system reform in the national spotlight, the AMA House of Delegates in June refined the Association's policy on increasing health insurance access.
Existing AMA policy, first approved a decade ago, calls for ending employees' federal income tax exemption for work-based coverage. That should happen, however, only after establishing a system of tax credits to help people buy health insurance. Related AMA policy also calls for expansion of health plan choices, more consistent health insurance regulation, guaranteed policy renewals, an individual insurance mandate for those earning more than 500% of the federal poverty level, and subsidies for medically high-risk people.
AMA policy adopted at the meeting further specifies that once tax credits are in place, employee exemptions for health insurance spending should end only for federal income taxes -- not for state or federal payroll taxes, which include Medicare, Social Security and unemployment taxes. Although ending the exemption for payroll taxes would simplify administrative work for businesses -- including physician practices -- and increase Social Security and Medicare Part A revenues, it would disproportionately affect lower-income people and raise employers' payroll taxes, and would not provide additional revenue for health insurance tax credits.
The revised policy is neutral on state health insurance income tax exemptions but says that if states decide to end this exemption, they should spend the resulting revenue on tax subsidies for health coverage.
State and federal health insurance exemptions for employees and the self-employed were worth $200 billion in 2004, according to AMA Council on Medical Service figures based on a February 2004 article in Health Affairs. The employee federal income tax exemption made up $109 billion of that total.
Several delegates expressed concern over how health savings accounts would be affected by ending the tax exemption. Richard Warner, MD, a Kansas psychiatrist, offered an amendment to maintain tax-free HSA contributions after insurance tax credits are in place, but the house did not adopt it. Supporters of existing AMA policy noted it would provide refundable, advanceable tax credits for health insurance spending, including HSA contributions.
Delegates also clarified AMA policy on the tax deductibility of health insurance spending. Previous policy had called for deductibility of out-of-pocket medical expenses and insurance premiums, but the house rescinded it in favor of the tax credit plan. AMA policy still envisions people with lower incomes having more generous tax credits and easier access to them than wealthier people. The policy does not specify an income cutoff.
David McKalip, MD, a neurosurgeon in St. Petersburg, Fla., offered an amendment to give Americans at all income levels tax credits for purchasing health insurance. He said the AMA policy represents a massive transfer of wealth that would discourage wealthier Americans from having health insurance by ending their tax incentives for buying it. His proposal was rejected.
Other delegates argued for the AMA tax credit policy. The plan is fair and fiscally responsible, said W. Jeff Terry, MD, a urologist in Mobile, Ala., and a member of the AMA Council on Medical Service, which authored the recommendations. "Please do not look at the tax deductibility issue in isolation from our overall plan."
Lower-income people need the tax credits more than wealthier Americans, said Bohn Allen, MD, a general surgeon in Arlington, Texas.