Tuesday, May 9, 2017

Medical Insurance Reform 2017

Most Americans under the age of 65 are still covered by employer sponsored health insurance plans. Nevertheless, even though they are an integral part of Obamacare, s0-called progressives demand a “single-payer” plan that would abolish these employer sponsored plans. One of the objections to these plans is that they provide a greater tax break to high salaried corporate employees than to low income workers. Since the cost of each employee’s insurance benefit is not taxed as income, employees in higher tax brackets do get a better tax break.

For example, if the cost per individual is $10000, an employee whose top tax bracket is 35% would save about $3500 per year in taxes. But an employee whose top tax bracket is 15% would only save about $1500 per year in taxes. A first glance this may seem like an inequity but let’s look a little deeper and contrast the CEO making $1 Million per year with the secretary who makes $40000 per year.

In the first place, the CEO’s annual federal tax bill is probably about $300000, and so a $3500 tax saving shaves about 1% off his or her tax bill. On the other hand, the secretary’s annual federal tax bill is probably less than $4000, and so the $1500 tax saving shaves about 40% off his or her tax bill.

Moreover, the employer sponsored medical insurance fringe benefit is a great equalizer. Every employee, from the CEO down to the mail-room clerk, gets the same plan. There can be no Cadillac plan for high salaried employees alone. Also, when a corporation provides medical insurance for the CEO, the cost represents only a tiny fraction of the $1000000 compensation plan. Adding a $10000 tax free fringe benefit to the secretary’s $40000 salary represents a 40% increase in total compensation.

Finally, individual employees do not have to choose a particular plan themselves. Company experts or consultants wade through the variety of insurance offerings and options and pick the plan. Anyone who has tried to pick from the various Medicare supplement options, or choose between the gold, silver and bronze plans offered through Obamacare will understand how difficult it is to assess these complicated plans.

From their beginning after World War II, the employer sponsored plans were incredibly attractive to all concerned and sparked a veritable revolution in health care in this country. Employers could deduct the cost of their plans as an ordinary business expense while employees could rely on their pre-tax medical insurance plan to cover major medical expenses. Since these were group insurance plans all employees had to be covered even if they had pre-existing medical conditions. Actually, increasing the employment rate is a great way to provide for people with pre-existing medical conditions.

There were obvious problems, however, that needed to be fixed. People would lose their coverage when they lost or changed their jobs. People with pre-existing medical problems would find it almost impossible to get coverage on their own once they left the group. Self-employed people did not ordinarily have access to these plans, although they could become members of groups that offered plans. Unemployed workers would eventually lose their coverage.

Attempts had been made to deal with these problems but back in 2008 critics of the system still insisted that over 30 million people were without medical insurance. Even if this figure was correct, it still meant over 270 Million Americans had medical insurance.
Instead of trying to fix the problems in the old system, proponents of the Affordable Care Act (Obamacare) sought to overhaul the entire health care system in this country.

Now instead of using a tax break to encourage employers to provide medical insurance, for their employees, employers would be forced to provide such insurance or pay a penalty. Some employers have actually opted to drop their plans and pay the penalty rather than be faced with uncontrollable costs.

Advocates of the single-payer system think that Obamacare did not go far enough and want to throw out the whole system that has worked so well for the great majority of Americans. So far it looks like the Republican plan that recently passed the House of Representatives will eliminate the employer mandate but still retain the privileged tax status of these plans. We’ll have to wait to see what happens.


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