Persons living in the United States today can expect to live longer than their parents and grandparents. Improvements in the diagnostic and surgical procedures utilized by physicians and other medical providers, prescription drug developments and lifestyle factors have been positive factors in the lengthening of life expectancies (Jefferson, 1999, 685). During the course of the Twentieth Century the life expectancy at birth has increased 60 percent to 76.7 years while the life expectancy at an attained age of 65 has increased from 11.9 years in 1900 to 17.8 reported for 1998, or a 50 percent increase. While the life expectancy has been rising the death rate for the period 1980 through 1997 has declined by 16 percent for the age population between 65 and 74 and 4 percent for those 85 and older (CDC, 2000, 59). This combination of trend lines would indicate a continued increase in life expectancies into the Twenty First Century.

At the same time as life expectancies are increasing the reported health profile of the senior population indicates a worsening health condition than those of the younger population groups (CDC, 2000, 53). In 2000, the estimated population of persons age 65 and older is reported at 13 percent of the total population of the United States or an estimated 35 million persons. This population is expected to rise to an approximate 20 percent of the total population of the United States with the number of persons increasing to 70 million persons (CDC, 2000, 53). Out of this estimated population of the age group 65 and older, the percent of noninstitutionalized persons was 96 percent (CDC, 2000, 55). When considering a reported 28 percent of non-institutionalized persons 65 years of age and older reporting their health status as fair or poor, an estimated 18.8 million persons will be reporting in this category (CDC, 2000, 55). The result of an aging population with an increasing number in the declining health category would project to increasing demand for health related services. This upward trend of the senior population, those 65 years of age and older, is estimated to cause the expenditures for health care to increase from $300 million to an estimated $750 million (CDC 69).

While the trend toward declining health through the risks of disease increases with age, a number of measures for the prevention or mitigation of this declining health trend exist. Principle amongst those measures is:

• Promoting a Healthy Lifestyle. Avoidance of unhealthy practices such as smoking and excessive use of alcohol along with regular physical activity;
• Early Detection Practices. Routinely having appropriate health screening and follow up care;
• Immunization. Reduction in the incidence of such diseases as pneumonia and influenza can result;
• Reduced injuries. Increasing regular physical activity and being aware of the physical environment in which we live (CDC 69-70).

Whether living a healthy lifestyle impacts a persons future health is relatively unpredictable, persons must prepare for the current and future medical costs related to the possibility of these health concerns. A person’s financial security for daily living and retirement can be and will be impacted negatively if health issues are not dealt with. The increase in life expectancy coupled with the declining death rate has impacted government tax policy due to the potential ramifications of health care costs. The Internal Revenue Code of 1986 includes an increasing number of tax related provisions to encourage persons to save money for retirement in anticipation of the need for financial security in the future. Tax policy which encourages retirement savings allows taxpayers to save money prior to the payment of tax on the income set aside with the additional provision that persons cannot withdraw the funds until at or near retirement age unless they pay a penalty. In addition, employers are offered tax incentives to encourage sponsoring different types of retirement programs for their employees.

When a retirement program sponsored by an employer meets the requirement set forth in the Internal Revenue Code to provide for the deferral of tax to the employee and a current tax deduction to the employer, it is considered a "qualified plan." Examples of these include:

• Individual Retirement Accounts, Regular and Roth. Contributions to a regular IRA are deductible to the taxpayer when the contribution is made with the tax on the earnings postponed until the funds are withdrawn. The purpose of this postponement of tax is to assist the taxpayer in the accumulation of retirement funds through the ability to create earnings on the deferred tax liability that will accrue to the taxpayer (Internal Revenue Code §219). The Roth IRA does not permit the taxpayer to take a tax deduction at the time of contribution to the fund, the benefit accrues at the time of withdrawal when the taxpayer pays no income tax upon the withdrawals (Internal Revenue Code §408A).
• Keogh Plans. Self-employed taxpayers are permitted to set up retirement programs which provide for higher contribution limits than the IRA accounts. While presented with a benefit of greater retirement savings for the self-employed the cost to the employer is the requirement of covering employees under the plan (Internal Revenue Code §§401-404).
• Employer Pension Plans. Employers are permitted to create various types of qualified pensions plans which allow the employer and the employee to make contributions to the plan providing a tax deduction to the employer while deferring income to the employee. These plans come within two broad categories: Defined Benefit Plans and Defined Contribution Plans. Under a defined benefit plan the employee is promised a specific benefit upon retirement (Internal Revenue Code §414). Under a defined contribution plan the employee is given a specified level of contributions with the benefit fluctuating dependent upon investment performance (Internal Revenue Code §414).

While the types and benefits of retirement accumulation options has grown in recent years, persons still need to be concerned with both pre and post-retirement healthcare due to the potentially devastating financial impact of uncertain health issues. The rising cost of health care works against the ability of the person in attempting to secure their financial future. One means of offsetting both the cost of health care and the related economic risks is to increase the number of persons covered by health insurance. This solution continues to be allusive to government policy makers since 43.4 million Americans representing 16.1 percent of the population of the United States remained uninsured as of 1997 (Kuttner, 1999). Approximately half of the uninsured population is considered low-income, with annual earnings of less than 200 percent of the federal poverty level. These individuals lacking access to preventive and primary care services generally rely on episodic medical treatment that is supported through a number of governmental programs and cross-subsidies from those currently insured (Felland and Lesser, 2000).

The federal government has been providing an estimated $100 billion in tax-based subsidies to encourage increased participation through employer sponsored health insurance (Gruber and Levitt 2). While the federal government has moved toward increasing the participation of self-employed in the tax subsidized structure, others who are not covered by employer sponsored plans have been left with minimal tax subsidized options (Gruber and Levitt 2). Participation in an employer sponsored insurance program has not come without a negative for the employee. Employers sponsoring the health insurance coverage select the insurance company and the types and amounts of coverage available, many times leaving the employee with little or no choice involving their health care options (Butler and Kendall 2).

While new nationwide survey data from the Center for Studying Health System Change suggest that more consumers have a choice of plans than generally believed, there are variations in plan offerings to families and employees, depending on where the family lives and whether an employee works for a small or large firm. Specifically, the survey findings indicate that only about 55 percent of families living in non-metropolitan and small metropolitan areas who are offered employer-based health coverage have a choice of two or more health plans, compared with 70 percent in large metropolitan areas. Employees in firms of 50 or more workers were also about twice as likely to have a choice of health plan as those in firms of fewer than 50 workers (Trude 3).

Employees participating in an employer sponsored health insurance program benefit from the ability to exclude the benefit from their taxable income. Amounts received in the form of reimbursements for medical care and payments for the permanent loss of a bodily function are both excludible from gross income (Internal Revenue Code §105). The contributions to the employer sponsored plan by the employer are likewise excluded from the gross income of the employee (Internal Revenue Code §106). When an employee is required to make a contribution to their health insurance cost, the contribution can be made with pre-tax money provided the employer has met the qualifications to do so under the Internal Revenue Code (Internal Revenue Code §125). The result of these benefits is to reduce the cost of the coverage to the employee since none pays tax on the money used to fund the insurance. With the income tax rate on individuals as high as 39.6 percent (Internal Revenue Code §3) and the social security tax rate for the employee and employer at 6.2 percent for each, the savings from these provisions can be considerable. For an employee in the highest tax bracket paying $5,000 for health insurance coverage, a federal government tax subsidy of $2,600 would be received through the exclusion of the health insurance benefit from the income of the employee and the exclusion of the premium from the social security tax paid by the employer and employee.

Congress has addressed the issue of the self-employed by permitting an increasing percentage of the health insurance premium to be deducted from the employees gross income which will provide the insured with a tax based insurance subsidy (Internal Revenue Code §162(l) as amended by P. L. 105-277). The percentage deductible from the self-employed individuals gross income is based upon the following phase-in percentages:

The restrictions placed upon the self-employed are meant to avoid any duplication in tax subsidy and in the ability to shop the tax subsidies to avail themselves of the most advantageous to the taxpayer’s individual position. Foremost in the restrictions is the limitation that a self-employed person who is eligible to participate in any other subsidized health insurance plan is not eligible for the deduction in any month in which the eligibility exists. It is also not permitted to take the deduction as both a deduction from the self-employed persons gross income and as an itemized deduction (Internal Revenue Code §213). The deduction is also not permitted to exceed the amount of the individuals net earning from self-employment and, unlike the employee, no reduction in the self-employment income in calculating the self-employment tax liability (Internal Revenue Code §162(l)).

For the Americans who do not receive a tax subsidized health insurance program though their employers or by virtue of being self-employed, little or no help is available to meet the cost of the health insurance (Butler and Kendall 2). The only tax subsidy available to the individual can be found in the deduction of health insurance premiums as itemized deductions (Internal Revenue Code §213). In order to receive a tax subsidy the individual must overcome two limitations placed upon the benefit. The amount of the health insurance cost plus all other eligible medical expenses are reduced by 7.5% of the individuals adjusted gross income (Internal Revenue Code §213 (a)). Once the allowable medical expenses are calculated, to itemize the total itemized deductions must be greater than the allowable standard deduction amount based upon the taxpayers filing status. For 2000, the basic standard deduction amounts for individuals (adjusted for inflation) are as follows (Internal Revenue Code §63(c)):

For a taxpayer with an adjusted gross income of $50,000 and a health insurance premium of $5,000, the 7.5 percent reduction would be $3,750 reducing the allowable medical deduction to $1,250. Without other medical deductions or other itemized deductions the remaining allowable amount would not exceed any of the standard deduction amounts and no tax subsidy to the individual health insurance purchaser.

While tax subsidies to employers assist with the affordability of coverage, this subsidy has not eliminated the problem of the uninsured worker. The coverage rate of workers, the percentage of workers insured in firms that offer health benefits, has actually decreased from 73 percent in 1988 to 67 percent in 1996 with the coverage rate for 1998, 1999 and 2000 averaging 65 percent (Kaiser 43). The coverage rate has also been negatively impacted by the take-up rate, the percentage of eligible workers who choose to participate in health benefits offered by their employer, where the average rate for 2000 was 81 percent (Kaiser 44). The principle reasons cited for not participating included: (1) Having coverage elsewhere, 72 percent; (2) Cannot afford employee share of the premium, 11 percent; (3) Don’t want or need coverage, 3 percent; and (4) Don’t know or other reasons, 14 percent (Kaiser 51).

The economics of premium sharing with the employee compounds the uninsured rate for the low-income wage earner. The General Accounting Office reports that escalating cost shifting resulted in many lower-income and part-time employees’ deciding not to take the health coverage, either for themselves or for their families, because of the cost of insurance coverage (General Accounting Office, 1997). Employers with more than 35 percent of their workers earning less than $20,000 per year pay a lower percentage of the insurance premium than do the employers with high wage levels (Kaiser 73). This differential in benefits is compounded by a shift in co-payments among HMO participants. While for 2000 the majority of workers were paying a $10 co-payment, the percentage declined to 55 percent. This decline was mirrored in the $5 co-payment where the percentage declined to 13 percent. The declines were transferred into an increase in the $15 co-payment to 19 percent, an increase of 9 percent in one year. These factors have a direct impact upon medical services the employee takes advantage of by leading to less utilization of needed services (Kaiser 73).

A study of compliance rates with scheduled medical appointments supports the proposition that an increase in co-payments will reduce utilization of required medical services. The severity of the problem of reduced utilization through non-compliance with scheduled appointments is most severe with pregnant women and EPSDT patients. The survey data indicate that patients are scheduling much needed appointments yet failing to attend the appointment.

The survey instrument was a questionnaire that contained questions about basic socio-demographic indicators, access problems related to health plan, appointment scheduling issues, type of office visits, mode of transportation, and some other access-related questions. As a follow up to an earlier study, a student intern was assigned to the Family Practice Residency Program of Northeastern Pennsylvania to contact 641 non-compliant patients by telephone from March 5^th through March 18^th, 2000. Each interview lasted approximately two minutes. There was a final response of 161 surveys representing a twenty-five percent response rate. The intern used intra-personal skills to provide the patient information concerning the importance of contact with their physician on a regular basis.

As can be seen from Table 1, approximately 65 percent of the patients surveyed were females with a significant portion being single (61 percent). The mean age of a survey respondent was 32, and almost 58 percent of the survey respondents were less than 32 years of age. Of all survey respondents, 51 percent have completed grades 9-12, and about 12 percent had college degrees.

The results of the analyses indicated that about 40 percent of the respondents failed to keep their re-check/follow-up appointments with their physicians. EPSTD and mother-to-be appointments constituted 7 percent and 14 percent of the missed appointments respectively. These survey estimates are consistent with the results obtained for the 7991 cases examined in an earlier study. Of all 7991 patients, 20.44 percent missed their re-check/follow-up appointments. Similarly, EPSTD and mother-to-be appointments constituted 7.37 percent and 10.84 percent of the missed appointments respectively.

It is important to note that almost 42 percent of the survey respondents failed to keep their appointments although they themselves had chosen the time and date of the office visit. Expected out-of-pocket expenses appear to be an important factor affecting access to physician services in the study sample. Twenty-five percent of the patients surveyed reported that their insurance plans have a co-pay or deductible for office visits. Approximately one fourth of the respondents indicated that they needed to arrange childcare around their appointments and 18 percent relied on public transportation to get to their appointments.

Tax subsidies for health insurance have not increased the utilization of services, in particular by certain high risks groups as the study indicates. This lack of utilization occurs while Congress continues to look at ways to increase the number of individuals covered by health insurance. One issue that Congress has looked at is the fact that the insured may be over utilizing services under their existing employer sponsored insurance programs which is driving up the cost of health insurance and inhibiting the ability to increase the number of covered individuals (Goldman 1). While the conclusions which can be drawn from the study seem to run opposite the belief that low-deductible health insurance programs due to over utilization, Congress has entered the fray in this area.

The Health Insurance Portability and Accountability Act of 1996, PL 104-191, 8/21/96, was passed by Congress in an effort to make available a more affordable health insurance program which had a long-term benefit of providing an additional retirement savings incentives for those who utilized services prudently. The Act provides for a combination of a high deductible catastrophic insurance plan and savings program through a medical savings account. This new plan would provide individuals the opportunity to accumulate funds tax free to pay for health care costs or, if unused, supplement retirement income (Internal Revenue Code §220).

The medical spending account provides the opportunity for persons to insure against catastrophic health events while functioning in a manner similar to the retirement savings provisions of the Internal Revenue Code. The retirement benefit component of the medial savings account provides the opportunity to assist in securing financial security since funds not spent on health care could be withdrawn penalty free at retirement (Internal Revenue Code §220(f)(4)(C)). Whether these benefits would reduce the uninsured rate is subject to debate amongst commentators. The savings feature benefits high-income taxpayers disproportionately while the low-income taxpayer would receive little or no benefit from the provision (Jefferson 704).

Arguments have been advanced that medical savings account eligibility would make it a favored form of insurance for small businesses which currently cover their workers with HMO’s (Goldman 71). The basis for claiming a preference is based in the concept of the HMO which prepays a substantial portion of health care costs through the premium. This prepayment provides a substantial tax break to the employee since the premium contributions are tax exempt while the payment of medical bills is deductible to a limited extent an itemized deduction (Goldman 64). The medical savings account provide the same benefit as the HMO, the contributions to the account are tax exempt to the employee, while discouraging alleged wasteful spending on unneeded health care (Goldman 65).

The catastrophic insurance concept coupled with the inability of low wage earners to pay the deductible could lead to unwanted risks for such individuals. While the role of the insured would be to become more proactive in their own health choices, the knowledge factor of the medically uneducated individual could cause needed medical care to go unattended with devastating results (Jefferson 718).

A consensus of the literature and research indicates the primary reason for the lack of health insurance among millions of people is the cost of coverage. Most of the uninsured cannot afford to pay for the cost of health insurance premiums which are expected to increase 10 percent or more in 2001 and 2002 (Center of Studying Health System Change, 2000). While at the same time assuring access to health insurance coverage (i.e., potential access) to all citizens regardless of their ability to pay is important, health insurance coverage alone does not guarantee utilization of services (i.e., realized access).

Patient co-pays and deductibles appear to be a major financial barrier indicated by one fourth of the respondents in this study. This barrier is compounded when employers, in an effort to lessen the health insurance cost to themselves, show a trend to increase deductibles and co-pays on the part of the employee. Perhaps, local health plans require relatively high co-payments based on national standards, which imposes a significant barrier because of historically lower wages and salaries in the area in which the study was conducted. The transfer of cost to the employee would favor a decrease in any existing over utilization of medical services yet at the same time creating a barrier to needed services by a portion of the population.

To promote access to physician services in the study population, special attention needs to be devoted to single mothers and low-income people. To achieve this goal suggests that government tax policy shift to a refundable credit based system. The refundable credit would allow a targeted group to receive a dollar for dollar reimbursement for expended co-pays or deductibles. While the design for such a credit would involve resolving issues ranging from fraud to credit limitations based upon the income of the taxpayer, such policy in the area of higher education has already involved tax subsidies through tax credits. Congress has employed the Hope Credit and Lifetime Learning Credit to encourage continued higher education (Internal Revenue Code §25A). Government tax policies must focus upon increasing health insurance coverage amongst the uninsured yet deal with the underutilization of the insured population. The failure to focus on both factors together will not bring forth the desired result of a health population with a reduced financial risk due to health related risks.

Buchanan, J., Goldman, D. and Keeler, E. (2000). Simulating the impact of medical savings accounts on small business. HSR: Health Service Research, 35:1, Part 1 (April): 53-75.

Butler, S. & Kendall, D. (1999). Tax Credits: Expanding access and choice for health care consumers through tax reform. Health Affairs (Online), 11 pages. Available: http://web.nexis.com/universe/document?_ansset=GeHavKO-EZYRMsSEZYRUUBR…(2000, Oct.10).

Center for Disease Control and Prevention (2000). CDC Fact Book 2000/2001 (Online), 91 pages. Available: http://www.cdc.gov/maso/factbook/main/htm. (2000, Oct 15).

Center for Studying Health System Change. (2000). Wall Street Comes to Washington: Market Watchers Evaluate the Health Care System, Issue Brief, 31(September): 1-4.

Felland, L.E., & Lesser, C.S. (2000). "Local innovations provide managed care for the uninsured." Center for Studying Health System Change Issue Brief, 25(January): 1-6.

General Accounting Office. (1997). Employment-based Health Insurance: Costs increase and family coverage decreases. Washington, D.C.: Government Printing Office, 2(February), (GAO/HEHS-97-35).

Gruber, J. & Levitt, L. (2000). Tax subsidies for health insurance: Costs and benefits.

Health Affairs (Online), 10 pages. Available: http://web.nexis.com/universe/document?_ansset=GeHavKOEZYRMsSEZYRUUBR…… (2000, Oct.10).

Jefferson, R. (1999). Medical savings accounts: Windfalls for the healthy, wealthy and wise. Catholic University Law Review, 685.48 (Online), 38 pages. Available: http://web.nexis.com/ (2000, Oct.21).

Kaiser Family Foundation and Health Research and Educational Trust (2000). Employer health benefits 2000 annual survey.

Kuttner, R. (1999). "The American health care system, health insurance coverage." The New England Journal of Medicine, 340(2): 163-168.

Trude, S. (2000). "Who has a choice of health plans?" Center for Studying Health System Change Issue Brief, 27(February): 1-4.