Skip over navigation


REVISITING THE ISSUES: Children and National Health Care Reform
Sara Rosenbaum


Financing is likely to be one of the most contentious health care reform issues. Regardless of the immediate source of funds to pay for health care, the costs of health care are borne by the citizens of the United States as a group. The precise set of mechanisms used to finance health care will determine the distribution of the burden in the population as well as provide incentives to purchase coverage in voluntary systems.

Under the McDermott/Wellstone bill, health care is financed entirely through an increase in employer payroll taxes (capped at 8.4% of payroll), a 2.5 percentage point increase in the personal income tax, and higher sin taxes. Insurance premiums are eliminated. How families with children are affected by this bill depends on the net offset they experience between higher taxes and the elimination of health insurance premiums.

All of the other reform bills impose premiums on families with varying subsidies for low-income families. Under the President's plan, families receiving either Aid to Families with Dependent Children (AFDC) or Supplemental Security Income (SSI) have 100% of their premiums paid. Working families would have 80% of their premiums paid by employers with subsidies for employers of low-wage workers. Low-income working families would also receive subsidies to help cover the cost of the remaining 20% of their premiums.

All of the other bills provide subsidies for low-income families, but the amount of assistance is less generous than under the President's plan. Subsidies for low- and moderate-income families generally phase out more rapidly than under the President's plan so that, as wages rise, premiums may increase enough to offset much of the wage increase.

Plans such as Cooper/Breaux, Thomas/Chafee, and Michel/Lott, which rely on voluntary purchase of coverage, run the risk of leaving uninsured children in families of moderate means for whom coverage is deemed too costly despite modest subsidies. Plans that rely on an employer mandate (the President's proposal) or a payroll tax (the McDermott/ Wellstone proposal) will cover all eligible children but run the risk of increasing unemployment or depressing wages, particularly among low-wage workers, as employers attempt to recoup higher compensation costs by adjusting their work forces.