Following on prior posts here, here, here and here, this NY Times article addresses the unhealthy economic effect of the favored tax treatment of employer-based health insurance. As opposed to individual health insurance policies, employer-based health insurance is a tax deductible expense of the employer and employees are not required to report the economic benefit of that policy as taxable income on their individual returns. The amount of the subsidy (in foregone tax collections) is about $150 billion and is expected to increase to $180 billion by 2010. As Harvard economist David Cutler notes: “If you had $150 billion to play with, you could come very close to universal coverage.”
Nevertheless, making employed taxpayers pay income tax on the value of their employer-based health insurance would be enormously unpopular politically, and the Times article reports that MIT economist Jonathan Gruber sees other problems as well:
As soon as the tax break was eliminated, company-provided health insurance would be likely to disappear, too. So some mechanism would be needed to pool groups of people and to avoid leaving higher-risk people to face enormous insurance costs. Such a mechanism would probably make health insurance affordable for all. And to make it universal, a mandate would be needed to make people buy it.
This isn’t communism. The changes could happen under a public health care system or one that is privately run.
Despite the knotty political problems involved in ending the tax subsidy for employer-based health insurance, the article notes the clear benefits from doing so:
[T]he fiscal incentive isn’t helping many of the people who need it most. A report by the Kaiser Family Foundation says two-thirds of the 45.5 million Americans who lacked health insurance in 2004 earned less than twice what the federal government defines as poverty. (For a family of four, the poverty line is about $19,300.) In four of every five cases, the uninsured made less than three times the poverty level.
In addition to going to the wrong people, the subsidy as designed promotes wasteful medical spending, encouraging the wealthy to buy more insurance and to use more health services than they need, according to the president’s tax panel. And it may bolster premiums across the board.
Altogether, the health insurance tax break exacerbates America’s medical dystopia: while the nation has the highest per-capita spending on health in the world – about $5,400 in 2002 – 18 percent of the population under 65 remains uninsured.
While this is a huge issue with many, many facets and permutations, one main problem I see is that people don’t seem to want health insurance, i.e. coverage against a catastrpophic or major health event rendering them penniless, but comprehensive health converage, giving them a subsidy on each dollar spent. I just don’t know how sustainable that is, which is why I think the Health Savings Account is a great idea. Another thing that irks me is the way the big insurance companies lock you into a bunch of coverage you don’t want, and can’t opt out of, in order to keep the price high. I, for instance, don’t want substance abuse treatment coverage on my plan. I also don’t want mental health coverage. But I have to take them anyway since they are part of the negotiated plan, and companies have to look after their liabilities in the area.
The reason you have coverage you don’t want or need (like substance abuse coverage for non-abusers, or maternity coverage for men) is that government requires it. Each state mandates what the minimum covered items are, and like all nannies won’t let you negotiate coverage less comprehensive than their mandatory minimum. In addition to the political benefits of proving how much they care, it also increases state revenues: most states charge a gross receipts tax on insurance companies, so the more money insurance companies must charge to cover regulatory costs the more tax the state receives.