Overview

Many low-income workers decline employer-sponsored insurance (ESI), very often because of the high cost of employee premium contributions. The federal government could subsidize employee contributions to ESI through a tax credit, which would be known as ESIC. In this way, employers would continue to contribute to insurance for their workers, and more federal dollars could be used to reach a greater number of low-income workers. The ESIC described here would be part of a broader program of tax credits for low-income workers. An ESIC might also be offered in conjunction with a public program, such as Medicaid or CHIP. In a tax credit program, workers without access to ESI would be able to obtain credits to purchase insurance in the non-group market. Workers with access to ESI would be ineligible for the non-group credit, but would receive the ESIC instead. Such workers should prefer the ESIC to non-group insurance because it is more convenient to obtain coverage through an employer than to shop around in the non-group market, and because Americans tend to prefer employerbased benefits.

Some proposals to subsidize non-group health insurance seek to exclude those with employer offers. Such a provision might be feasible in a short-term program, or one designed to reach only a small proportion of the uninsured, but in the long term, such a policy would be unfair to low-income workers who currently pay their own premiums. In addition, if the non-group credit were available to workers in firms that did not provide ESI, employers would increasingly offer higher wages rather than insurance to attract new workers. This could eventually erode ESI. An ESIC might help to stem the erosion of ESI that could occur if a tax credit were only available in the non-group market.

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