Individual Pay or Play

Basic Design

This plan developed by John Goodman would replace the current tax exclusion for employer coverage with a flat refundable federal tax credit per U.S. resident to be used for the purchase of private health insurance; for all those electing not to do so, the combined federal tax credits for such individuals would be provided to their local community of residence in the form of a block grant to help finance indigent health care.

  • Eligibility: all U.S. residents would be eligible for a fixed individual refundable tax credit of ($1,500 in 2004) regardless of income; individuals could qualify for the credit for all or part of the year that they have eligible health insurance coverage, regardless of the source of coverage.
  • Benefits: any health insurance plan meeting federal standards for the current tax exclusion would qualify for the tax credit except that the credit is not restricted to employer-provided health plans. This would include any health plan that is ERISA-eligible or allowed to be sold within a state so long as it met federal mandates such as mandated maternity coverage and 48-hour hospital stays after a well-baby delivery if requested by the patient and physician. There would be no additional restrictions on the form or scope of coverage.
  • Freedom of Choice: this proposal would expand freedom of choice for most Americans. Those purchasing coverage for less than the amount of the credit could keep the savings and those purchasing more expensive coverage would do so with after-tax dollars.
  • Financing: the suggested $1,500 tax credit represents the average amount spent in 2004 on subsidized care for the uninsured; this figure coincidently approximates the average per capita cost in 2004 of the tax exclusion for employer-provided coverage among those who qualify for that subsidy. Thus, the proposal is intended to be budget neutral.
  • Regulation: the proposal’s author has not specified the mechanism by which this would be implemented, but it would require minimal regulation. First, there are no new restrictions on the types of health plans for which individuals could receive a federal tax subsidy. Operationally, the tax credit could be made both refundable and advanceable (as per RNHI), which would require some modest changes in tax forms by the IRS. However, the payment of subsidies to communities would simply require the federal government to remit $1500 x area population minus the amount claimed as tax credits to each locality, which would entail relatively minor administrative costs.


  • Himmelstein, David U., Woolhandler, Steffie, Goodman, John C., Sade, Robert M. Our Health Care System at the Crossroads: Single Payer or Market Reform? Annals of Thoracic Surgery 2007 84: 1435-1446.


  • Federal. The idea of eliminating the tax exclusion to instead provide more standardized tax subsidies that the uninsured would forego if they elected to remain uncovered, along with giving states the flexibility to divert federal subsidies now going to institutions to instead provide subsidies to the uninsured to encourage purchase of private coverage were important features of the Bush administration efforts to reform health care. Executive Office of the President. Affordable, Accessible, And Flexible Health Coverage. Last updated January 24, 2007.
  • Massachusetts Health Plan. Similarly, the idea of diverting existing safety net subsidies to the uninsured to instead finance subsidies to purchase coverage and using tax penalties for those electing to remain uninsured is a central feature of the Massachusetts universal coverage initiative. State of Massachusetts. Health Care Access and Affordability Conference Committee Report. Boston, MA: August 3, 2006.
  • Other Countries. No other major industrialized nations have adopted this approach to covering their uninsured.

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