A federal tax credit to encourage employers to offer health coverage

Many firms that employ low-wage workers cannot afford to offer an employee health plan, and many of the uninsured work for such firms. This article ma kes the case for an employer tax credit, administered by the Internal Reven ue Service, as a way to extend health coverage to uninsured workers and the ir families. The permanent, fixed-dollar, refundable credit would be availa ble to all low-wage employers (those with average wages of $10 per hour and less), including those already offering coverage. The credit would be grad uated depending on average wage: the maximum credit would equal 50% of the cost of a standard benefit package; the minimum would equal 30% of the pack age. It also would vary by family size and could be used to cover part-time and temporary workers. Participating employers would be required to pay at least 50% of the health insurance premium, proof of which would be shown o n firms' tax returns. The paper provides justification for this approach. I t closes with a discussion of strengths and weaknesses of this approach and alternative design features.