“U.S. weighs taxing health care benefits: Unusual coalition from both the left and the right looks at ending exemption for job-sponsored plans,” by Kevin Hall, Knight-Ridder, 17 July 2005, http://timesunion.com/AspStories/story.asp?storyID=379969&category=NATIONAL&BCCode=HOME&newsdate=7/17/2005.
Tax-free corporate health insurance, which super-empowers big business, is a relic of price controls from the Second World War
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.
This pork warps the free market
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.
And doesn’t help those who need it the most
“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.
But if we ended this regressive, distorting loophole, we could afford to give health credits to all 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.
It’s easy to do
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.”
This is a first step to solving our biggest domestic problem. Let’s do it.