2009 May 18 Monday
Taxes Coming On Medical Insurance Benefits?

Congress is busy thinking about how to tax from the haves to give to the have-nots.

A bipartisan outline released Monday by the Senate Finance Committee suggests peeling back a number of tax exemptions to pay for expanding health insurance to the nation's 46 million uninsured. They are just options at this point, but they signal where lawmakers are headed as they try to pass a health-care package by August.

The government gave up $194.2 billion in revenue due to health tax breaks in 2008, more than any other single group of abatements, according to the Senate report. The majority of that comes from the tax exemption for employer-provided health-care benefits. The Senate proposals would chip away at that exemption by limiting the amount that would remain tax-deductible based on employees' incomes or the value of their plans, or both.

I've watched recent televised Senate Finance Committee hearings about health care and some of the panelists chosen to testify to the Senators supported limits on tax avoidance employer-provided health insurance. Workers will pay more in taxes to fund medical care for the uninsured. The taxes will either set limits on the amounts employers can pay for insurance per employee or limit it by employee income.

This means that someone in their 50s or 60s will likely pay more in taxes as the cost of their medical insurance rises with age.

Already the insured pay for medical care for the uninsured via cost shifting that occurs in hospitals and other treatment centers. More productive people pay for less productive people. This burden is going to become heavier as the fraction of the population with low skills and low earning power increases due to demographic changes wrought mostly by immigration.

Share |      By Randall Parker at 2009 May 18 05:46 PM  Economics Health

kurt9 said at May 19, 2009 9:56 AM:

If you are self-employed, you do not get the same tax exemption on medical insurance benefits as employees do. This is an unacceptable differential between employees and self-employed people. Although I would prefer that this differential be eliminated by offering the same exact tax benefits to the self-employed, the proposal to close it by making employer-provided health insurance as a part of taxable income is a reasonable option.

The other differential that should be eliminated is to make employees pay the same percentage of social security tax as the self-employed. I have never understood why a person should get favorable tax treatment by working for someone else rather than working for themselves.

Sgt. Joe Friday said at May 20, 2009 7:32 AM:

Obama and his minions have single-payer, i.e. government run health insurance as their ultimate goal, so this has to be viewed in that context. First is the plan to offer a "public option", which supposedly will allow private insurers to contiunue operating, albeit with "competition" from the government. How do you think that's going to work out? When the government plan finds it's unable to "compete" with private insurers or gets stuck with only the poorest and sickest clients as an insurer of last resort, do you think the rules of the game might get changed?

Any government plan is also likely to be free of taxes, while private plans will be treated as "income." Do you think that might influence the situation?

The real aim here is to put private health insurers out of business, but to do it in a sneaky way. Same thing will happen with talk radio - Obama is too smart to launch a frontal assault by trying to reinstitute the Fairness Doctrine, so he'll do it through the side door, challenging individual station licenses, imposing "local content" regulations, and discrediting the way ratings are calculated.

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