Posted on 07/19/2005 5:30:12 AM PDT by ancient_geezer
WASHINGTON - For 60 years, American workers have received job-sponsored health-care benefits that are excluded from income and payroll taxes, but now they're in danger of taxation.
An odd coalition of groups from both the right and left wants to tax those benefits, and a special presidential commission is weighing whether to recommend ending their tax exemption when issuing its report Sept. 30 on how to overhaul the tax system.
On Capitol Hill, aides to tax-writing committee chairmen said ending the exemption had become "background chatter" in both chambers of Congress, where lawmakers are meeting privately in search of consensus on how to close expected funding gaps for Social Security and Medicare.
Today's system of employer-provided health care dates to World War II, when the federal government imposed wage caps to help the wartime economy. Unable to offer higher wages to attract scarce workers, companies competed for them by offering health insurance.
The war ended, but job-based insurance stuck. By the mid-1950s the Internal Revenue Service code favored it. Companies were allowed to deduct the costs of employee health-care plans from their taxable income. For employees, those often-generous benefits were separate from taxable wages.
Left-leaning advocates call for ending the tax exclusion for job-sponsored health benefits in the name of fairness. They think the benefits are an invisible tax break for wealthier Americans that's unavailable to poorer ones, who generally don't get job-based health insurance.
"The tax break is regressive because people at the lower-income brackets get less benefit. It does just the opposite of what it should," said David Kendall, a senior health-policy analyst at the Progressive Policy Institute in Washington, a research center for the centrist Democratic Leadership Council. "It promotes coverage for people who can already afford it."
Census Bureau data show that 82 percent of Americans who earned more than $75,000 last year had job-sponsored health plans excluded from taxation, but only 23 percent of Americans who made less than $25,000 did.
Americans without job-based health insurance must pay their medical bills out of pocket or purchase their own insurance, and in both instances they generally are unable to deduct those costs from their taxes. President Bush hasn't called publicly for ending the tax exclusion, but he promotes Health Savings Accounts, enacted into law last year, which allow qualifying Americans to set aside money for health-care expenditures that can be credited against income taxes.
Some right-leaning advocates think the tax exclusion for job-sponsored health benefits should end because it distorts the free market. The Heritage Foundation, a conservative policy-research center, says the exclusion leaves consumers in the dark about the real costs of health care, leading them to make uninformed decisions that ripple through the health-care economy, driving up costs.
"The idea of an employer determining what is best for them is increasingly untenable," said Robert Moffit, the director of Heritage's Center for Health Policy Studies.
Advocates on left and right agree on this: Ending the tax exclusion should be accompanied by a new national tax-credit system for health care.
Tax credits would exempt health plans from taxation up to a set dollar limit. Employers would put price tags on the benefits they provide to employees - many already do this to remind workers why wages aren't rising - and anything above the government-set limit would be treated as taxable income. This would allow the taxation of so-called Cadillac health plans, the generous ones that cover everything from fancy eyeglasses to hair transplants.
"The mechanics of doing it don't have to be revolutionary," said Mark Pauly, an expert on health-care costs at the University of Pennsylvania's Wharton School. "The main problem now is that the exclusion makes expensive insurance look cheap."
The chairman of the tax-writing House Ways and Means Committee, California Republican Bill Thomas, has repeatedly criticized the exclusion of health plans from taxation. Any restructuring of Medicare, Social Security or the federal tax code must go through his committee. Changes in all three areas are being debated in his committee and elsewhere in Congress.
Earlier this year, the Congressional Budget Office, the legislature's analytical arm, estimated that eliminating the tax exclusion for employers and employees for health-care benefits could raise $195 billion by 2010, and $705 billion through 2015.
If employer-provided life insurance were treated as taxable income, that would raise another $9.7 billion through 2010, and $22.4 billion through 2015.
While those numbers may appeal to lawmakers looking for ways to close a funding gap, few people would welcome being taxed.
"The economics of it are easier than the politics," said Jack Meyer, the president of the Economic and Social Research Institute in Washington, which champions ending the exclusion.
Little is accomplished on health care in Washington without the blessing of the AARP, the powerful lobby for older Americans, and it opposes ending the exclusion.
"To remove the exemption for health benefits would be a significant tax increase on tens of millions of Americans," said David Certner, AARP's federal affairs director.
AARP is open to capping the value of the exclusion provided there's a direct tradeoff benefit for older Americans, especially those ages 55 to 65 who've lost job-sponsored health insurance and are too young to qualify for Medicare, the federal insurance program for retirees 65 and older.
"We would certainly be willing to look at reasonable limits if that money would be plowed back into helping the uninsured," Certner said.
In 2003, 45 million Americans lacked health insurance, census data show. The number of uninsured could be lowered sharply by ending the exclusion and using the new tax revenue to create subsidized insurance for those without job-based coverage, advocates said.
"This really needs to stay within the health sector, to help fix some of the problems we have been dealing with for several decades," said Grace-Marie Turner, the president of the Galen Institute, a Virginia-based health-policy group.
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For more information online, go to:
- The President's Advisory Panel on Federal Tax Reform, March hearing, testimony under Tax Treatment of Families, at www.taxreformpanel.gov/meetings. Click on the one for March 23, 2005.
A 'free market' isn't always so free.
The problem with the Progressive Policy Institute and other Communist think tanks/activist organizations, is that they always couch proposals ignoring the vast majority of taxpayers, in this case those earning between $25k and $75k, who pay the overwhelming majority of taxes, and who get the royal shaft every time.
I'm fine with this if:
The government gets out of the health business altogether (driving costs back down to sane levels) and employers are required to increase salaries by the amount currently going to health care premiums.
One thing we don't need is another stealth welfare program!
"Left-leaning advocates call for ending the tax exclusion for job-sponsored health benefits in the name of fairness. They think the benefits are an invisible tax break for wealthier Americans that's unavailable to poorer ones
I see. Now average blue collar workers are "wealthy?" Real smart move.
In 2003, 45 million Americans lacked health insurance, census data show.
Again, bull. Notice that this doesn't read "workers," just Americans, which would include children, the unemployed, and the unemployable.
The number of uninsured could be lowered sharply by ending the exclusion and using the new tax revenue to create subsidized insurance for those without job-based coverage,
Yet again, more BS.
What this would lower sharply is the number of insured workers, as employers drop the option.
Quite some time ago, when Ms Slick Willie was proposing a mandated health insurance scheme whereby all employers HAD to offer insurance, many of my employess had very big grins on their faces.
Until I told them "If that happens, okay."
"When the Clinton Health Fairy floats in the window you are fired and the positions will be outsourced." Gee, no more smiles.
AARP is open to capping the value of the exclusion provided there's a direct tradeoff benefit for older Americans
Gee, what a shock. The excrable AARP is in favor of big tax increases only if they get their share of the pie.
I thought this was about health insurance for working Americans.
Advocates on left and right agree on this: Ending the tax exclusion should be accompanied by a new national tax-credit system for health care.
I really doubt that statement.
Well, nothing is "free," in the strict economic sense.
wait, let me get this straight.. their gonna tax MY medical benefits, to pay for some lazy bums FREE medicaide/care?
Most employers I would not throw them as far as I can trust them, esp. in the home health care industry. Many employers would pay you as little as possible, as little they can get away with. Talking about 'letting the market decide' is good but not till you actually have to put it into practice esp. when you have kids to feed.
Oh yes. Meanwhile, the recipients think they're getting FREE healthcare.
No it won't. You need to look into HSA type health insurance plans (disclaimer - I don't sell them, I just have one).
Everyone should be doing this. I have a $2600 per year deductible and pay just $ 180 a month for health insurance. I then choose to pay $200 a month into my HSA at 4% interest, money which is mine to use to cover my $2600 deductible, but which is also mine to keep tax-free for retirement.
A friend has a family HSA plan with a $5000 a year deductible and pays only $ 380 a month.
You manage your own costs. Doctors are willing to negotiate lower costs for treatment primarily because they get paid right away, and they don't have to do all the health insurance paperwork and wait to get paid for 60-90 days.
I recently had a test done for which the doctor usually charges $250 to insurance companies. I paid only $75 for the same test and follow-up visit.
You do the math. Get rid of the paternalistic crutches and get free.
But you trust the government to make everything right? I don't quite get this ...
If insurance benefits are taxed it will just hasten the day when the US adopts national health insurance. In the mean time those of us who can afford the trip will be going to Thailand or India for our care.
Are people on FR that naive to think this will be a good thing for the average guy?
Anytime the RATS and RINOs get together I get nervous and look over my back.
The fact is that employers will not give more in salary and will just not offer health coverage. Who on here could possibly believe otherwise in most cases?
If the employer has to pay more salary, it will have to pay more social security taxes, fica, etc etc. They won't do that!
Nothing but the market decides the worth of your job skills, unless you are a socialist.
Any way you cut it, everyone but the ones who pay nothing will get screwed. But they do vote. Think AARP.
I didn't SAY I trust the government anywhere in my statement. I am stating a fact of dealing wit employers who want to pay you as little as possible.
That's not true but resort to namecalling by all means.
Yes, you have another 10K to pull out of your pocket every year to pay taxes on a non-cash benefit, don't you? I know I do. Of course, we will only be eating once a day and we can live without cable, internet, phone service. Come to think of it, those are just luxuries anyway, and if everyone can't have those things, why should we?
Thank you for stating the obvious. This will not add up to anything good for the working person.
Interesting story. Last year I suggested right here on FR that the best business opportunity of a lifetime might be sitting right across our southern border. Doctors who are looking to shed all of their insurance-based patients and work for reasonable cash fees could open shop in Mexico and operate free from many of the excessive rules, regulations, and legal obstacles they face here in the U.S.
Honestly, I think that anything the government does short of a total withdrawal from the health care market will do more harm than good. Piecemeal measures of any kind will not have a significant positive impact.
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