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B. TAX SUBSIDIES FOR INDIVIDUAL COVERAGE

Tax subsidies for individual insurance coverage also may have relatively little impact on

decisions to buy coverage. Marquis and Long (1995) estimated that a subsidy of 60 percent

would induce only about one-quarter to one-third of uninsured working families to purchase non-

group insurance. Marquis et al. (2004), Reschovsky and Hadley (2004), and the CBO (2005)

reached similar conclusions.

Reschovsky and Hadley (2004) further compared out-of-pocket spending for health care

among low/middle-income uninsured people with their net spending on insurance and health care

combined, if they were to accept any of three hypothetical tax credits. Because of the high cost

and low benefits of nongroup policies, they found that nearly all would need to spend more out-

of-pocket for health care under the hypothetical tax credits than they spent when uninsured—and

often much more. These results suggested that a sizable reduction in the number of uninsured

would require a more generous tax credit than those in current proposals.

Finally, Swartz (2001) has pointed out that unaffordable premiums are not all that prevent

uninsured people from buying insurance. A significant number of people may be deemed to be

high-risk and therefore denied individual coverage, offered a ”substandard” policy with major

benefits excluded, and/or charged much higher premiums. Consequently, subsidies based on

income alone would not help many people gain coverage unless insurer underwriting in the

individual market also is constrained.

C. COST SHARING IN MEDICAID/SCHIP

Facing budget crises as well as a potential cut in federal matching, many states are

considering whether to raise cost-sharing or limit covered benefits for some or all participants in

their Medicaid and SCHIP programs. While no rigorous empirical estimation of price elasticity

in Medicaid/SCHIP has been done, Ku and Wachino (2005) concluded that all available research

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