Raising Revenue Through Taxing Employer Provided Health Care
Robert Reich makes the case for doing it at length. He suggests you could generate the money needed to finance health care reform without entirely scrapping the health care exclusion:
The good news is that a program providing universal health care doesn’t need the full $246 billion a year generated if every employee now receiving tax-free health benefits had to start paying taxes on them. Obama’s health care reserve fund needs around $650 billion over ten years. So a sensible and politically feasible alternative is to limit tax-free employer-provided health benefits to workers whose incomes are under, say, $100,000 a year, and subject those with higher incomes to progressively higher taxes on them.
This seems fine to me. I’m not sold on the idea that this particular tax increase is overwhelmingly superior to other options, but the really important thing is to (a) do the health care reform and (b) find a way of paying for it that congress will go for. If this is congress’ favored approach, I’d be happy to go along.
34 Responses to “Raising Revenue Through Taxing Employer Provided Health Care”
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May 25th, 2009 at 10:41 am
Or: We could substantially cut the Pentagon’s budget, enact Obama’s plan, and cut everyone’s taxes.
I’ll keep repeating this till it sinks in.
May 25th, 2009 at 10:43 am
What are some ways of paying for it that you wouldn’t support? For instance if Congress decided to eliminate public transportation funding and put a tax on bicycles etc you might not support it.
May 25th, 2009 at 10:44 am
a sensible and politically feasible alternative is to limit tax-free employer-provided health benefits to workers whose incomes are under, say, $100,000 a year, and subject those with higher incomes to progressively higher taxes on them
This is fine for part of the money, but if you want to pay for the whole shebang with this source of revenue, I believe you need more.
And that’s the danger. I’m sorry, but the reality is that normal people have no clue how much their current health insurance costs. They know it costs an insane amount if they lose their job or have to buy it on their own. And they believe insurance companies are not operating in good faith, and use the fine print to not cover what people think should be covered.
But the important reality is that people don’t think fixing this should cost a lot of money, because they don’t have a grasp of how much their own healthcare currently costs.
And I’m sorry, but making those costs explicit is a political loser.
Although, frankly, this is “tax the benefits of those earning more than $100,000″ is a MUCH better approach than the “tax plans that are comprehensive” approach that we’ve been hearing about. Much better to tax people who are wealthy than it is to go after more comprehensive plans, which may be used by those who are lower income and those who are more likely to be ill. It also lets you say things like “listen, if you earn less than $100,000 a year, don’t worry about this.”
May 25th, 2009 at 10:46 am
Well JH I agree we should cut defense spending. A lot of the defense spending is completely useless and some of it actually is worse than useless. Then you have to find some way to make people feel like you have a national security strategy that is going to make them feel safe even with these cuts. You have to do it politically.
May 25th, 2009 at 10:47 am
And JH makes the more correct point. Seriously, why do we have a huge fleet of submarines roaming the oceans? Are they out looking for U-Boat wolf packs? Do we think Osama is down there?
May 25th, 2009 at 10:53 am
Obama says “we are out of money.” See
http://www.poligazette.com/2009/05/24/obama-were-out-of-money-so-reform-health-care/
Maybe we should not have devoted so much to the stimulus. No answer there because we don’t know how effective the stimulus might be. But for health care reform purposes let’s remember that we have no more money.
May 25th, 2009 at 10:54 am
One worry I have about the tax the wealthy approach is that wealthy people seem to be very well organized politically. Look what happened to the idea of limiting how much wealthy people could deduct for charitable giving. Or worse look at the crazy amount of support that existed on a bipartisan basis for eliminating the estate tax. Not only do rich people give money to politicians who do their bidding, but they seem to be able to organize very effective communications strategies that make people with normal incomes think that giving Paris Hilton a tax cut is a great idea.
May 25th, 2009 at 11:01 am
Good idea, but what makes Reich say it’s politically feasible? I thought Charlie Rangel, among others, had already made it quite clear the idea was DOA.
May 25th, 2009 at 11:13 am
At some point in the future we will have to decide whether we want higher taxes or whether we want to have slightly worse health care. At that point we may decide to combine that decision with further reforms to make the system more efficient. But right now Obama is pushing that decision off. This IS probably being done because Obama wants to get reelected. That said, any plan to cut health care costs without creating universal coverage will likely be very bad for poor people and it would be nice if libertarians would admit this. Also Hillary Clinton tried to deal with the cost issue and the universal issue at the same time and it didn’t work out so great. Finally its not like Republicans have put forth a sustainable health care plan of their own. Thats not what they are about, they are about protecting certain vested interests by doing everything they can to gum up the works.
May 25th, 2009 at 11:26 am
What is wrong with a payroll tax like we have for social security, medicare, and unemployment comp?
Or, alternatively, absorb medicare into a larger health care tax so that you have one line item on you paycheck for healthcare.
Am I missing something here?
Obviously we’d need to figure out how to deal with the sel employed and non-working. But a tax on employer health care benefits won’t get any money from them either.
May 25th, 2009 at 11:33 am
Father Geraldo had insurance through the Church. One time after he touched me, blood was running down my leg. I didn’t have insurance, so Father Gerlado lied and said I was his son. He said I slipped on a bicycle seat. I needed stitches and I couldn’t sit for a month.
May 25th, 2009 at 11:33 am
Business doesn’t want to pay the tax. Employees/individuals will pay it.
There is potential for this to become a corporate trojan horse wheeled into every home in America.
Business loses tax free status of the health insurance benefit, but the individual retains it. Corporations will quickly shift the burden to the employee, after all, they have the tax deduction.
Little new revenue is raised and the U.S. Chamber of Commerce freed their members of that pesky health insurance benefit. The worker now pays for health insurance and funds their retirement.
Pay close attention to details, folks. The red and blue team badly want to appease their corporate sponsors.
May 25th, 2009 at 12:09 pm
Business doesn’t want to pay the tax. Employees/individuals will pay it.
“Want” is a little anthropomorphic, but this is basically correct that any employment-related taxes will result in employees receiving lower compensation, worse health-care package offerings from the employer, or else, a general increase in unemployment. The burden will be passed right through the employer to the employee.
I don’t believe government-provided care is a good idea, particularly at present, but if it were to be enacted, mothballing submarines (or, perhaps, ceasing to give x billion anually to countries like Egypt and Israel) seems like a much less counterproductive way of raising funds than bleeding regular Joes, as has been suggested in both this entry and the one about taxing alcohol.
Obama could also stop giving money to failing companies so they can perpetuate their poor business models.
May 25th, 2009 at 12:11 pm
What is wrong with a payroll tax like we have for social security, medicare, and unemployment comp?
That’s single payer, and single payer apparently can’t work, because America’s suppliers of clipboards to billing offices won’t allow it. Or something.
May 25th, 2009 at 12:21 pm
I am not necessarily against this plan but it is more complex than it looks. Families with 2 workers eligible for health insurance often sign up for both in case one gets laid off and also to maximize benefits. If both workers happen to work for the same company there are various trade-offs between family and individual coverage.
But one of the big issues that needs to be resolved first is that currently hospitals (and other providers) over-charge those with insurance in order to recover (at least part of) the cost of their required care for those who can’t pay. That needs to be straightened out. In other words, one of the reasons why health insurance is so high is that it is hidden “socialized” medicine.
May 25th, 2009 at 12:25 pm
‘I don’t believe government-provided care is a good idea…’
The only government provided care that we have is via the VA and local public sector health care systems, Parkland in Dallas, for example. And even then many of the physicians are employed by private groups which contract with the public entity. Medicare pays for care but is not a health care provider.
May 25th, 2009 at 12:28 pm
[...] ::…Don’t really care what complicated schemes you come up with to pass health care, as long as you Git Er Done….:: [...]
May 25th, 2009 at 12:28 pm
[...] ::…Don’t really care what complicated schemes you come up with to pass health care, as long as you Git Er Done….:: [...]
May 25th, 2009 at 12:33 pm
It is true that hospitals over bill insurance. But the amounts actually paid are a small fraction because insurance companies will not pay anywhere near the billed amount. Self pays are the ones that get it in the shorts. You can make the case that no two people pay the same amount for the same services in our system. Medicare and Medicaid pay the least, followed by private insurance (who all might vary slightly) followed by the self pays. The billed amount is just the starting point for the negotiations.
I have a very high deductible and I have had providers change the rates on me because of that. All in all, we have a truly ugly system.
May 25th, 2009 at 12:34 pm
I’m self-employed, in my 60s but not yet eligible for Medicare, and poor. I pay my own health insurance, which costs me about $6500 a year — approximately 1/4 of my income. (That’s just premiums. There are copays, of course, plus dental, plus — oh, don’t get me started.) I get to deduct this as an adjustment on my taxes. In order for any change in the health care system to be financially meaningful for me, I have either NOT lose my deduction, or that $6500 has to go down. Anyone here want to take a guess as to which it’s going to be?
May 25th, 2009 at 1:03 pm
Alas, we can not cut defense. Not now. Having watched many hours of Gates and Mullen testifying before Congressional committees leaves no doubt in my mind.
Gates is visibly disgusted by the process. He is taking an endless grilling from Republicans for “slashing” defense by increasing spending only 5% annually and having the temerity to divert a few billion toward human resources and away from weapons systems. He feels it necessary to offer his resignation at least twice a session, and if the Republicans had their way, I believe they would accept it.
The longest of long shots, single-payer health care, if it should miraculously become a reality, will not be funded by cutting defense, at least not as long as the Republican Party continues to breathe.
May 25th, 2009 at 2:03 pm
The longest of long shots, single-payer health care, if it should miraculously become a reality, will not be funded by cutting defense, at least not as long as the Republican Party continues to breathe.
Or at least not as long as Democrats continue to shy away from confronting the real perniciousness at the heart of our political problems: the unconstitutional shift to supermajoritarian democracy.
May 25th, 2009 at 2:23 pm
Well, so much for this campaign promise:
http://www.politifact.com/truth-o-meter/promises/promise/515/no-family-making-less-250000-will-see-any-form-tax/
May 25th, 2009 at 2:30 pm
Or this critique:
http://latimesblogs.latimes.com/washington/2008/10/debate-transcri.html
May 25th, 2009 at 2:30 pm
jasper
“Supermajoritarian” democracy? I like it. It sounds like an efficient form of government. Let’s give it a try.
It can not be worse than our two party system that must forever balance the wishes of the sane and the insane.
May 25th, 2009 at 3:14 pm
Cutting Pentagon spending may or may not be politically possible, but it will certainly not ever happen if people keep knowingly saying, “It’d be nice, but it’s politically impossible.” Nothing is politically impossible. The citizens of Paris obliterated one of Europe’s oldest and most powerful monarchies (and bitchslapped the Church out of public life to boot) in a couple of years. Ditto for the Russians in the 20th century.
We’re just talking about cutting the military’s budget from super-gargantuan down to merely huge. The case can be made to the people, and it will work if done even somewhat competently. I wish to God liberals would show some spine for once.
May 25th, 2009 at 3:27 pm
Re: The worker now pays for health insurance and funds their retirement.
Um, what’s wrong with this? I mean, at least the health insurance part? In an ideal world employers wouldn’t be paying to insure their workers; that cost would be borne by the whole nation, and the whole nation would have coverage. How do you think Canada funds its single payer? They use a variety of methods (including a rather regressive sales tax), but they don’t have employers paying insurance premiums.
Re: I pay my own health insurance, which costs me about $6500 a year — approximately 1/4 of my income.
Your income is therefore no where near the amount being talked about.
Re: For the first time in history, you will be taxing people’s health care benefits.
Um, not the first time. Not at all! I have a domestic partner, who is covered under my insurance through work. And I pay taxes (including FICA, state and local tax) on every penny of his premium– both the copay and the portion my employer pays.
May 25th, 2009 at 10:06 pm
I have a better idea: tax the sick.
It would be a so-called Pigovian tax, the primary goal is to deter an undesirable behavior (and we do not desire people to be sick), and it that fails, at least, as some partial consolation, we get revenue.
May 25th, 2009 at 10:28 pm
The major benefits of taxing employer-based insurance are (a couple, Reich notes):
- The exception is regressive
- The exception makes us less sensitive to insurance premium increases (if, say, the first $10,000 in premiums were exempt from taxes and pegged to inflation, upper-middle class and higher people with stable jobs would suddenly become far more concerned with spiraling health costs.)
- Anyone purchasing insurance on the individual insurance market doesn’t get the sorts of exemptions that employers get, which, in effect, screws over the self-employed, contractors, consultants, and others who don’t get insurance through work.
- In the long-run, employer-based insurance is stupidly complicated and byzantine–moving toward treating individual insurance and employer-based insurance with the same tax rules (and, of course, making sure that individuals can get covered regardless of health status, etc.) would go a long way to moving us away from an insurance system that doesn’t really work.
May 26th, 2009 at 7:33 am
I’m actually for removing the tax-exempt status of employer-provided benefits to fund national health care. But I’d like to hear more about this $100,000 cap proposal, because I’m curious why it appears to generate enough money (I notice RR doesn’t state what CBO scored the capped income proposal) compared to taxing all benefits, and whether it does that in an honest manner. Is that *individuals* who *earn* more than $100,000 a year? Or (a much larger group) households with more than $100,000 a year in income? Does the income definition include the value of benefits? Is the cap indexed?
May 26th, 2009 at 8:32 am
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May 26th, 2009 at 4:29 pm
I’m all for removing the tax exemption on employer health care as well. As a gay person getting benefits through my partner, we pay taxes on my health care. All you straight people can do the same. No special laws,AMIRITE?
May 26th, 2009 at 5:16 pm
It all sounds so “reasonable”.
In the end, we, at all income levels, are going to end up paying for health insurance because the big corporations will find a “reasonable” way to devolve the costs to us.
Same way we’re paying for their failed business models. And their executive bonuses and the lobbying efforts that protect those bonuses.
May 30th, 2009 at 10:40 pm
Glad I found this site. I am a self-employed health author. Blue Shield just upped my premium…I’m in “healthy tier 1″ — go figure. I’ve never used it…This system sucks. Ready to pack my bags, fur children and fly to HI or Canada. As a boomer, I find it frustrating that the rates keep soaring. Why can’t I and others who work like a dog to stay healthy get a rebate?
http://www.calorey.blogspot.com [see my idea of fixing this sicko system]