Private purchasing pools to harness individual tax credits for consumers

While health insurance tax credits could help people who otherwise could no t afford to purchase coverage, many might still find individual coverage to o expensive and its marketplace dynamics bewildering. As an alternative, th is paper outlines an approach using private purchasing pools for tax-credit recipients. The objective is to offer these individuals and families a cho ice among competing health plans, and provide many of the same advantages e njoyed by workers in large employer groups, such as relatively low administ rative costs, no health rating, and an effective "sponsor." Some express op timism that private pools will emerge naturally and thrive as an option for individual tax-credit recipients. However, adverse selection and other ind ividual health insurance market forces make this a dubious prospect. The ap proach presented here gives purchasing pools the same tool employer groups use to maintain stability and cohesion-a significant contribution that cann ot be used elsewhere. The ability to offer health plans exclusive access to a sizable new, previously uninsured clientele-tax-credit recipients-would enable purchasing pools to attract health plan participation and thus overc ome one major reason several state-directed pools for small employers have failed. To avoid other pitfalls, the paper also suggests private pool struc tures, as well as federal and state roles that seek to balance objectives f or market innovation and choice with those for coverage-source stability an d efficiency.