Recent congressional proposals and reforms advocated by the presidential candidates have renewed the debate about whether the problem of the uninsured is best addressed through subsidies to employers or to individuals. The large number of the uninsured working for small businesses provides some political support for subsidizing these firms in an effort to increase coverage. However, in this paper, the authors argue that it is more efficient to provide subsidies directly to individuals and families than to employers. Subsidies directed specifically to the low-income population will lead to less displacement of private spending because that population has low rates of private coverage. In addition, subsidies based on income treat those in similar economic circumstances the same, eliminating equity concerns associated with treating low-income people differently based on their place of employment.

Because employer subsidies are provided based on employer characteristics and the limited information that employers have about their workers (and because workers within a firm can vary significantly), subsidies are much more difficult to target effectively to individuals with the greatest needs. Plus, employer subsidies do not eliminate the need for individual subsidies. Many employers will not voluntarily begin to offer coverage and not all the uninsured are attached to the labor force, so low-income individuals will continue to need additional financial support in order to afford coverage.