Taxing Health Care – Tiresome but Persistent

June 6, 2009

The old saw, “The devil is in the details” does not seem to apply in the discussion on taxing health care benefits.  While there appears to be a certain momentum behind this idea, the details of the consequences (other than raising revenue) are barely discussed.

mad_hatterJonathan Cohn, a writer I generally admire, gives high praise to a new report by the Center for Budget Priorities, arguing that this report should prompt people like me to rethink our opposition to the idea.

So perhaps their latest message will get through to liberals and liberally inclined interest groups that oppose tinkering with the tax exclusion for health benefits. The title of their new report says it all: “Limiting the Tax Exclusion for Employer-Sponsored Insurance Can Help Pay for Health Reform: Universal Coverage May Be Out of Reach Otherwise.”

I recently detailed  the devils that I was concerned about.  The CBP attempts to address some of them.  So let’s take a closer look at their arguments, using the reports own headings.

The Exclusion is the nation’s costliest tax subsidy.

Duh?  Health care is one of the fastest growing expense items in the federal budget.  It is also one of the fastest growing cost items for private business.  Which costs less, the loss of tax revenue or paying the full freight for the health care now provided by the private sector?

Am I missing something?  A tax subsidy is how the federal government provides incentives to the private sector to do what it doesn’t want to do itself.  The real issue is this.  Does the private sector do a good job of providing health care to the public?  If yes, continue the subsidy.  If no discontinue the subsidy and let the government take over that responsibility.  But don’t take away the tax subsidy and expect the private sector to continue their responsibility for providing health care.  That’s a bit like getting off the toilet, and then, well you get my drift.

The exclusion is poorly targeted. It increases health care spending

Yes, it is poorly targeted.  Go back to item one.

The point that it increases health care spending is an argument that appeals to some.  But to support it you would have to show that the rich with health insurance use more health care than the poor with health insurance.  And also show that somehow that difference is explained mostly by the preferential tax treatment.  I don’t see that argued at all; let alone successfully.

Exclusion Can Be Reformed Without Eroding Employer-Sponsored Insurance

Very doubtful.  But this is a topic all by itself.  But what about eroding the income of middle class tax payers?   Where is that discussion? After all, where is this pot of money coming from?

Our experience and the experience of others with the taxation of domestic partner health benefits tells us that taxing the benefits of just one person, not the family, of a middle class ($30k – $50k) wage earner reduces take home pay by $30 to $50 dollars per week.  Let me repeat that.  Taxing health care benefits of middle class tax payers will reduce take home pay by at least $30 to $50 PER WEEK.

Some writers dismiss this argument without even describing it.  Just an off hand comment that “labor hates it.”  It seems no one else is sticking up for the middle class on this point.

Structuring a limit on tax exclusion

This section goes part way to addressing some of the arguments I raised in my previous post.  But the CPB arguments step through the looking glass, as do their arguments about eroding employer sponsored insurance, with this statement:

If properly designed, a limit on the tax exclusion could be administered equitably and without large compliance burdens for employers or workers.

Perhaps I have just a bit too much experience with the phrase “without large compliance burdens.”  Or maybe I just feel that our health care system spends far too much on administrative expenses.  We should find ways to spend less, not dismissing ever mounting marginal increases in administrative “compliance burdens” that have absolutely nothing to do with the delivery of health care.

Charley James of the LA Progressive offers the best response.

The Kennedy plan is relatively simple; the emerging Baucus plan sounds as if it is being written by Jackie Mason.

First, you take health plans that are tax free now and you make some of them taxable, but not all of it, and not for everybody. But who? We don’t know who! Then, a new tax deduction puts money in the pocket of the people who we don’t know who they are so they can take it out again and buy what they had for free in the first place. Next, the money the states use to pay for medical care for people who don’t have health insurance could be used to pay for people who don’t have health insurance which means they can’t get good health care. But we don’t know who they are, either. Well, maybe we know, but we’re not sure, so we won’t say. Then, three million people who don’t have any health insurance will have money from the tax deduction they didn’t want, to buy health insurance on their own if they have enough income to take advantage of a $15,000 deduction and can actually can buy a policy that provides coverage. There might be six people in America who can do this. So we’re taking money from here, and moving it over there, and then back to here, which where it was in the first place and now let’s have some tuna because I’m exhausted.

Taxing health care benefits is a bad solution on top of a bad idea – employer sponsored health care.  Give the money currently spent on health care by employers to the employees, then tax it.  Then let the governement provide health care.


Employer Health Plans – Is there a Future?

May 30, 2009

Is there a future for employer based health insurance?

This is not a rhetorical question.

This is not an anxious question from an employee benefits professional.

This is not wishful thinking by a single payer advocate.

In the Call to Action by the Senate Finance Committee,  Chairman Senator Max Baucus (D-MT) calls for “Strengthening the Employer-based system.  We must ensure the continued viability of the employer-based system – the principal source of health coverage for most Americans.”

Fine words.  But the weak point in the statement is the phrase “continued viability”.  It is fair to ask whether the current system is viable and whether it can continue.

Both the percentage and the number of people covered by employer provided health insurance and the percentage of firms offering health insurance has declined over the last two decades. 

There are fundamental contradictions in the commitment of conservatives and employer groups to employer based health care plan.  And the two are not entirely in sync.

Conservatives for ideological reasons cling to things “private” and abhor government intervention, even when it makes markets work better.

Employers are a bit more practical in their approach.  But for the most part don’t seem able to see their way out of the box they are in.  They may have an ideological aversion to government action, or they may just not be willing to give up their current way of doing things.

But some employers are willing to question the current system.  Jonathan Weber, CEO of New West, challenges the assumption that employers should have a responsibility to pay for the health care of their employees.

He writes:

Why is this my responsibility? 

Quality health care is a societal good, so why should it be the obligation of private-sector entities to provide it?

 A recent Reuters article by Andy Sullivan describes how “job lock” inhibits entrepreneurs, an argument also made here.  He quotes Todd Stottlemeyer, former CEO of the National Federation of Independent Businesses (NFIB).

 “There are lots of factors that go into why somebody starts a business or doesn’t start a business: Do I have a good idea, do I have capital, do I have risk tolerance?,” said Stottlemeyer, now an executive at a hospital chain. “Being able to get health insurance … should not be one of those determinant factors.”

But even if they acknowledge the box they find themselves in, employers are schizophrenic about their way out of the box.  Few employers would go as far as Jonathan Weber.

A 2007 article in USA Today by Julie Appleby observed discussions in Congress at that time to de-couple health insurance from employment.

The measures can be lumped into differing philosophies about the direction the USA should move: either toward a health insurance market in which people buy policies on their own while armed with tax credits or deductions, or one in which people are able to buy insurance through group-like “exchanges,” with some government oversight. Some of the plans likely would encourage employers to drop coverage because the employers would lose all or part of their ability to write off insurance as a business expense.

Noticeably absent is a public plan alternative, either the single payer proposal or the public plan option.

Employers also speak by their actions.  Two very clear trends indicate what employers really think about their obligation to provide for the health care of their employees.  The first is cost shifting to employees in the form of increased out of pocket expenses at point of service and increased deductions from pay for health care premiums.

The second trend is toward something resembling a defined contribution approach to health care financing.  This is characterized by High Deductible Health Plans and Health Savings Account, a favorite concept of conservatives in the last administration.  The theory behind the practice is that by giving employees cash instead of benefits, they will become wiser shoppers for health care services and thus help to constrain health cost inflation.

What is the conclusion?

Employers don’t want the responsibility for the health care of their employees.  They occasionally admit this.  They will concede that it is not good for small and new businesses.  Their practices clearly tell the true tale.

They just won’t admit it.  The just can’t get past old practices and ideological constraints.

But employers need to let go.  Health care needs to be de-coupled from employment.

Julie Appleby quotes Sara Horowitz, founder and director of the Freelancers Union whose members are independent workers in finance, non-profits, domestic services, publishing, advertising and health care – says something needs to change, because the working world has.

“The nature of work is changing: Jobs are much more short-term and flexible,” Horowitz says.

Employers need to catch up.  Maybe Congress will catch on.