Incenting the Private Sector to Invest in Population Health: A Tax Credit for Self-Insured Employers
ReThink Health has been exploring: could tax credits provide a source of sustainable financing for population health and, if so, under what conditions? In early December, Stacy Becker shared our research and perspectives on this topic here on the blog. She provided an overview of the ideas we presented later that same week at the National Academies of Sciences, Engineering and Medicine (NASEM) Roundtable on Population Health workshop, Exploring Tax Policy to Advance Population Health. And in late December, my colleague Amanda McIntosh shared one of our two tangible prototypes for how a population health tax credit might work–a charitable state tax credit to finance regional wellness funds.
Today I am sharing our second prototype, which addresses how state policymakers could engage the private sector in transforming population health by creating a tax credit for self-insured employers. While the population covered by such a tax credit would be limited, it is quite significant: for-profit health plans fully insure 62 million Americans and an estimated 100 million Americans are covered by self-funded employer plans (that is, employers assume the risk for the health care costs of their employees, rather than covering them through a health insurance plan).
What is this Tax Credit Prototype?
By creating a tax credit for self-insured employers, state policymakers would open the opportunity for them to invest more broadly in the health of employees and their families. The idea is for self-insured employers to get a credit amounting to a portion of their investment in pre-determined, certified population health interventions for employees and their families, for the purposes of improving health, reducing health care costs, increasing productivity, and receiving a return on investment (ROI). Think Diabetes Prevention Programs, prenatal home visiting, smoking cessation, etc.
Employers can already get a tax credit for implementing employee wellness programs. But this is different. This splits the state’s (taxpayer’s) cost of addressing important social determinants of health and non-clinical interventions for a region’s population with employers. Generally speaking, the purpose of employee wellness tax credits does not match the purpose we outlined for our proposal. Massachusetts offers a small business tax credit for employee wellness programs, for example, but it is only for employees (not their family members), does not take ROI into consideration, and does not necessarily promote broad, non-clinical investments. The tax credit we are proposing could potentially reach a fairly large population and promotes a multi-pronged approach to improving health.
Why Target Self-insured Employers?
Self-insured employers have a business incentive for keeping their employees healthy, however, they also have quarterly profits and shareholders to think about. The more people that are healthy and working, the greater the potential for profit–yet it’s not always obvious that the benefits of investing in longer-term interventions outweigh the costs. A tax credit for these employers, however, would directly and predictably reduce their costs of investing in proven interventions and would minimize the risks associated with waiting on the ROI. Employers can get their feet wet in trying these investments, hopefully reaping benefits that promote additional investments.
Critical Design Considerations for Making This Tax Credit Achieve its Purpose
At the most basic level, this tax credit would involve self-insured employers investing in a pre-determined portfolio of population health interventions for their covered employees, and then receiving a tax credit for a portion of this investment. Beyond the initial structure, there are many design principles to consider so this credit meets its desired aims. Here are but a few:
- Right-sizing the incentive. The credit must be large enough to entice employers but not so large that taxpayers end up overpaying for too generous an incentive. Getting the balance right is more art than science there is no magic formula to calculate this.
- Predictability. Predictability for the state (knowing how much this credit will cost taxpayers) and predictability for the claimant (employers knowing how much they will get from this tax credit) are important features. Having a cap on the tax credit at the state level (e.g., $50 million per year will be spent on the program in total) and/or a cap at the claimant level (e.g., employers can receive up to $250,000 back) can make the scenario more predictable for the state and the employers making the investment. Sunsetting, a nice word for tax credit expiration date, is also a mechanism that encourages predictability.
- Effectiveness. Eligible interventions should be pre-determined and certified by an agency in the state (e.g., Department of Health), so employers are choosing from a curated portfolio and investing only in evidence-based interventions with proven benefits. Databases such as the Washington Institute for Public Policy make this cost-benefit information public and accessible. When policymakers rely on it, they can assure taxpayers that providing the tax credit is an investment in what works!
- Simplicity. Having clear eligibility and claiming requirements should reduce administrative hassle and increase efficiency. Using electronic forms can make administration simple.
- Accountability. Building in accountability mechanisms from the start will ensure that the taxpayers are not continually paying for an unsuccessful tax credit program (newsflash–we already have unsuccessful tax credits on the books, and we continue to pay for them…). The state must specify annual reporting criteria from the start (without putting to much paperwork burden on employers and protecting employee data), and aggregate it annually to understand the broader productivity indicators, health cost data, chronic disease management and prevention, and more.
What Could Success Look Like for This Tax Credit Prototype?
We are aware that there is no perfect tax credit and boondoggles are out there. However, by placing serious emphasis on design principles, and utilizing learnings from the many existing tax credits, state policymakers could potentially realize the following successes:
- Lower health care costs for involved employers and employees;
- Reduced absenteeism and increased productivity;
- Prevention of chronic diseases;
- An overall healthier workforce in a region, leading to increased economic productivity; and
- Reduced social expenditures to the state and higher tax revenues.
As a reminder, this is all a prototype. Our goal is to put an idea out there that inspires more creative thinking, and hopefully we’ve achieved that! Do you have ideas of how this prototype or another type of tax credit could work in your state or region? Is your state or region already planning something really cool with tax credits? We want to hear from you, so leave us a comment below and be sure to tuned for reflections on the NASEM conference from Project Director Ella Auchincloss.