‘Bonding’ or ‘Fining’ the Uninsured Is a Tax Hike

This is, to some degree, a distraction from the debate over health reform, because uncompensated care is not a significant driver of health spending. It may account for one percent of spending, or 3 percent if you want to take the most extreme, outlying, estimate that might be credible if you’re in a very grumpy mood about the uninsured (as I’ve discussed with references in this briefing paper, especially pp. 17-18).

But there is a solution that does not require hiking taxes on the uninsured. Although most uninsured earn low incomes, enough have high incomes that their failure to buy health insurance results in their paying extra income taxes that undoubtedly cover the cost of uncompensated care incurred by the uninsured as a class. I’ve previously estimated these extra taxes at $60 billion, an initial estimate that is probably due for updating via more sophisticated number-crunching.

The way to make these numbers precise is to get rid of the exclusion of employer-based health benefits from taxable income and give individuals a tax deduction or credit instead. The IRS could then easily tally up the amount of extra income tax “left on the table” by taxpayers who don’t buy health insurance, and transfer that revenue to their states of residence to pay for uncompensated care. I’m absolutely confident that this would cover the costs without states raising taxes via “bonds” or other fines.

Then again, as Mr. Cannon points out, why should the government concern itself with uncompensated care at all? Almost all private hospitals are set up as non-profit institutions, affiliated with religious denominations. Community leaders established them, generations ago, with an express purpose of delivering “uncompensated”, i.e. “charitable”, care. If the Catholic, Presbyterian, or Jewish hospitals are more interested in lobbying governments for tax breaks and handouts than adhering to their founding missions, that says something more distressing about the state of our society than quibbling about the cost of uncompensated care does.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

Scroll to Top