I just read an article Henry Stern wrote a few weeks ago about Senator Ron Wyden’s idea to do away with the current tax break on group health insurance premiums, and instead give everyone who purchases health insurance -whether through an employer or on their own – a tax deduction based on the price of the policy.
I agree with Henry here. There is no reason why employees who get health insurance through their employer should get a tax break, while those who purchase individual health insurance don’t. There are currently two tax mechanisms working in favor of employer-sponsored health insurance. First, the employer gets to deduct the premiums as a business expense, and second, the employees are not taxed on the value of the health insurance. So if an employee is earning $40,000/year and also receiving health insurance benefits worth $10,000/year, he’s only taxed on the $40,000 salary, and not the value of the health insurance.
Contrast this with an employee who works at a company that does not provide health insurance, and also earns $40,000/year. Let’s say he takes the frugal route and purchases an HSA-qualified health insurance plan for his family for $5000/year. Not only is he on his own to pay the premium, but he has to pay it with after-tax dollars. He can save pre-tax money (if he has any left over) in the HSA to help cover future medical expenses, but the actual premiums aren’t tax-deductible for him. (note that the employee described above is also free to set aside pre-tax dollars in an HSA if his employer offers and HSA-qualified health insurance policy).
Obviously, if we do away with the tax break that employers get for providing health insurance to their workers, they might stop providing it. But if the workers have reasonable, affordable, quality options for purchasing health insurance on their own, it isn’t necessarily a bad thing that health insurance would no longer be tied to jobs. There are, however, benefits to group health insurance that aren’t currently available in the individual market. In Colorado, very few individual health insurance policies cover maternity, whereas all group plans do. And while group plans are guaranteed issue (for groups of 2 – 50 employees), individual health insurance is medically underwritten. So we wouldn’t want to just do away with group health insurance and send people out into the individual health insurance market the way it is today. But with all of the reform on the horizon, I imagine that there will be plenty of changes to individual health insurance over the next decade or so.
I do hope that we eventually see a change in the tax code so that if there’s a tax break for having health insurance, it’s available to everyone who has health insurance, and not just those who have policies that are tied to their jobs.
I found Henry’s article in the Health Wonk Review, hosted last week at The New Health Dialog Blog.