How Much Does it Cost to Keep America Healthy?
Wednesday will not be just any day. It is the day that I take my four year old daughter to Children’s Hospital of Philadelphia where she will see a pediatric cardiologist. If all goes well, and I am hopeful that it does, they will tell us that she has an “innocent murmur” and send us on our way.
What does something like that cost? With my health insurance plan, it will cost me $20. Yep, just $20. I cannot imagine the “real” cost of that visit. I suspect the “real” cost of the visit would be in the thousands.
Lucky for me, I don’t have to think about that. My daughter is not one of the 8.7 million children who are uninsured in this country. And for that, I am thankful.
Like many Americans, my husband and I get our health insurance through our employer (in our case, ourselves, which complicates the equation - but that’s a post for another day). Also like many Americans, our bills keep going up - another 20% in 2008. As health insurance costs go up, fewer employers are paying to keep it for their employees - but about half do. Why do those employers choose to keep paying?
One, because the tax code says that you can. The tax code allows businesses to provide health insurance to their employees as a tax-free benefit. In some cases, this is the equivalent of a “bonus” every month of several hundred dollars, a bonus that isn’t taxable. Employees clearly desire this kind of benefit - and why wouldn’t they?
It’s also a fairly cheap benefit for the employer in comparison to an individual’s costs. Companies can get consolidated health insurance packages that are both discounted and do not require physicals or reliance on individual health histories. In other words, a company’s out of pocket costs for employee coverage are less than the costs that an individual would pay.
Additionally, most companies are allowed a 100% federal tax deduction for costs that they pay out for employee health insurance. There are some exceptions to this rule - s corporations, for example - but for the most part, the rule is that this benefit is completely deductible to employers (and again, not taxable to employees). In contrast, individual taxpayers may only deduct costs that are above the “floor” for medical expenses if they itemize; there’s an exception to this rule for self-employed persons. The end result is that only a small percentage of individual health care costs are actually deducted as compared to corporate health care costs.
So, more or less, our tax system provides incentives for companies to provide health insurance to employees, which is a good thing, right? That’s why I am able to take my daughter to the doctor tomorrow without worrying about how we’ll pay for it.
Only we are paying for it. Just because we don’t see it come out of our bank account doesn’t mean that we’re not paying for the real cost of health insurance in America. You see, those tax incentives add up. Those deductions that companies are allowed - the ones that individuals don’t get - are considered “foregone revenue” in the tax world. It is money that the employer would have paid in taxes, either in corporate income tax or payroll taxes, but didn’t. That money is made up elsewhere in the federal budget; in other words, this benefit could be considered a tax subsidy. And an expensive one. According to Money magazine, health care insurance “subsidies” in the tax budget for 2007 cost $134 billion; the Kaiser Family Foundation puts the figure closer to $200 billion.
From a policy standpoint, it’s pretty tricky. The current system has been criticized as inefficient and costly… Do we continue to provide the same level of tax incentive that currently exists - and assume that US taxpayers will continue to foot the bill?
Or should we consider a more “free market” approach - offering a tax credit for all individuals in exchange for making the costs of health insurance taxable to the employee? This is a key component of McCain’s health care plan proposal (full details here), which has been praised as more efficient for companies but criticized as creating an incentive for companies to stop providing health care benefits.
Or should we support a plan that that would require an employer to either provide health insurance to employees under the current system or contribute toward the cost of a public plan? This is a key component of Obama’s health care plan proposal (full details here), which has been criticized as having too much government involvement but praised as making health care more accessible to those who are uninsured.
Or should health insurance be tax neutral - meaning that there should be no benefit to any employer or individual?
I’m curious to hear your thoughts!
