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.
Wait, is this a misprint? Your friend has a higher deductable but pays $180 more?
NO, NO, NO.
If a guy making $30,000 a year gets health benefits, and another guy making over $100,000 a year at the same company gets the same benefits, the lower paid guys benefits are worth a whole lot more to him. It could be worth $10,000 a year. Besides, some places, like where I work, the more you make, the more your part of the monthly health insurance is. So for the lowest paid workers, they only pay in I think something like 40%, whereas at the higher end, I think its something like 60%. So the lower paid guy guy would get hit even harder in that type of case.
Of course the best way to take care of this really is to get rid of employer paid health insurance, and give the money to the employee instead.
Everyone wants to pay as little as possible for anything they're buying. That's life. The only solution is to be a very valuable commodity - like a top breeder who can also keep house, homeschool, and organize a Republican precinct :-).
I think the key word was "family." They're paying more for multiple insureds.
That's a little misleading. The doctor might charge the insurance co. $250, but the insurance company probably paid them $50-$75 for it.
lol
You want more government, when it's the government (federal and state) and its regulations that has caused the entire health insurance mess in the first place ? Don't you ever wonder why you can only buy health insurance plans with benefits you don't need - like a single male getting coverage for gynecological services ? Our government at work - one size fits all.
No, freedom and personal responsibility is the only answer. Health care costs, and related health insurance costs, will come down in part when people stop using doctors to diagnose a common cold just because someone else (health insurance and their employer) are paying the cost. If I don't want coverage for certain services, I should be able to get a policy without it as long as someone is offering one. Why should I pay for 30 days of mental health hospitalization insurance since I have no intention of ever using it ?
Those of you who THINK you are conservative should reexamine your premises.
Many people I know have their job skills worth based on mommy and daddy getting them a cushy job and doing nothing.
Regardless, this idea smacks of big business and big government screwing the little guy, again and again and again.
The problem with some Freepers is that they are too wedded to doctrine and theory while not realizing the reality of man's tendancies and what is most likely to happen, rather than what they hope to happen.
Businesses will not only not offer health coverage, but will not absorb the double whammy of paying more in salary.
So, who gets Screwed????
By the way, I have my own business and don't currently have health insurance other than my gym membership, no-fault coverage on auto policy, and good luck.
I am not in favor of any national plan, but this idea just smells of colusion.
One idiotic element of the modern U.S. economy is this bizarre notion that medical insurance must somehow be tied to a person's employment. Breaking this link will likely be one of the best things that ever happened in this country, so anything that moves us in that direction is a good thing.
I'm all for this. This is the way it SHOULD HAVE BEEN in the first place.
IT IS A CONSERVATIVE POSITION TO DO THIS.
IT WILL PUT DECISION MAKING BACK IN THE HANDS OF INDIVIDIUALS AND OUT OF THE GOVT HANDS.
Will it be an easy change.......no.
They may, but the point remains. Doctors don't have to waste time playing games with insurance companies and can spend their time being what they are - doctors. Do you want a doctor, or a car salesman ?
Ah, missed it. :^)
note the words "family plan" - mine is single. Sorry if it was misleading.
instead of 50-100-10000 people represented by your HR dept negotiating for a health care plan, you'll be on your own.
This is a good thing. When I checked into being covered by my wifes policty at the university it was three times the cost of what I could get on my own. My policy and an MSA is the same cost but now I manage it. The are lots of newer companies without the baggage of expensive clients.
A problem, though, is that the Federal government and many states require most employers to provide health insurance. So even if the benefits are taxable to the employee, the employer does not have the option to pay them an equal amount as salary.
As presented, therefore, I see this as harmful.
(Yes, that's different from what I said originally. I gave it more thought.)
Apoligies. I missed that. :^)
Since the rest of what seemed like quotes were italicized and that one was not, no, I didn't realize that was a quote from the article.
Maybe I need more coffee ;)
"IT WILL PUT DECISION MAKING BACK IN THE HANDS OF INDIVIDIUALS AND OUT OF THE GOVT HANDS"
So when some middle class taxpaying citizen gets hit with more taxes and the choice of more salary (Which the employer will not do!), and has less salary to take home, that is a good thing?????
The employer will not offer more salary. What is so hard about this? More salary to the employee means more taxes to the employer and employee. Its a double hit and double negative.
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