Journal Issue: The Next Generation of Antipoverty Policies Volume 17 Number 2 Fall 2007
The price tag of this proposal is sure to be quite high. A recent analysis placed the cost of expanding Medicaid to all adults with incomes below the poverty line at $24 billion in 2006, with the federal government bearing $14 billion of that cost and the states, $10 billion. 45 Most tax credit proposals have been on a much smaller scale than the one proposed here, and the cost estimates are quite sensitive to their structure. One tax credit proposal that was capped at 30 percent of the cost of insurance coverage was estimated to cost about $15 billion in 2005.46 The Congressional Budget Office estimated the cost of a maximum credit of $2,750 for a family with a phase-out point of 300 percent of the federal poverty level to be $3.1 billion in 2008.47 A far more ambitious and generous proposal that includes sliding-scale subsidies for people with incomes up to 400 percent of the federal poverty level to purchase employer- sponsored insurance was estimated to cost $27.1 billion in 2007.48 This proposal included subsidies for purchasing nonemployer plans, at an estimated cost of $31.4 billion. Based on these figures, I estimate that my proposal will cost about $45 billion a year, with the federal government paying about $35 billion and the states, about $10 billion.
This cost estimate is very rough. A more precise estimate would require a much more sophisticated modeling approach. The dynamics of the health care system are such that small changes in policy variables can ripple through the system with large and unexpected effects. Models cannot perfectly anticipate those effects, but they provide important information that can be used to either prepare for the effects or modify the plan. In this proposal, small changes to the structure of the EIHC could yield large unexpected changes in employer and employee behavior and in overall cost. The proposal was designed with the intention of keeping those changes modest, but if modeling results suggested changes on a large scale, it would be worth considering modifying the proposal.
The cost could be brought down in many ways. The obvious options are to reduce the maximum value of the EIHC, make the phase-out steeper, or scale back the public program expansion. Each would limit what the plan could achieve. Another option would be to put an age limit on eligibility for this new program. If the primary goal is to reduce poverty for low-income families, the policy could target younger adults and families. Such an approach would focus resources on the share of the uninsured that has, on average, lower costs, because health costs tend to increase with age.