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 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!
Watch Michael Moore’s “Sicko.”
Then ask your representatives why we are the only developed nation without socialized medicine.
Let me first start by saying that I am NOT in favor of socialized medicine. I feel the need to make this disclaimer in light of the fact that I think the government SHOULD take a more active role in the regulation of the industry (health insurance that is) as well take an ACTIVE role in ensuring that all people have access to the medical care they need. I find that many people equate government involvement with socialization of the system. That is completely the wrong leap of logic to make. Also, employers not only have a tax incentive to help pay for health insurance…they also have a business need to do so. Because sick employees don’t work and are a drain on the company. And tax credits to everyone do not equal health care coverage for everyone. If someone is living paycheck to paycheck and has the opportunity to get more money…some will choose to spend that on things like ‘food’ and ‘electric bill’ instead of health care. It’s the tough choices that are made everyday that make McCain’s plan illogical.
Employers have a tax incentive to help pay for health insurance. They also see it as a business need. Sick employees don’t work.
Tax credits to everyone do not equal health care coverage for everyone.
I am thinking more along the lines of a more active role in the regulation of the cost of health care. Lets take a role in ensuring that all people have access to the medical care they need, by making it affordable.
As for tax breaks, the average individual tax payer already has a break on Sch A. A bit of realigning, put it on the front page of main form.
Cheaper cost, individual tax breaks. Large companies pay more in taxes.
Unemployment and medical bills are the number one cause of bankruptcy in the US according to my bankruptcy attorney from 5 years back. And if you think that’s the fault of poor financial planning, I wish some really horrible ailment strikes you or your family. No I don’t really, but you know, walk a mile in someone else’s shoes, eh?
We need SOME kind of healthcare system that isn’t motivated by profit for it to work. If your motive for helping people with their health problems is how much money they can pay you, well. Sick people aren’t good income generators, eh? Insurance tied to a specific job doesn’t work, because in my experience, as soon as you contract a chronic illnes, private corporations dump you like a hot potato. Because it costs them, too, when you’re not able to work, and depending on the size of the company, your illness can drive their premiums through the roof. I can’t say I blame them. If they just paid _tax_, and the government provided some minimum healthcare, maybe that would work.
I’ve lived in Canada as a broke-ass student, and I’ve spent time in the Netherlands, both places that have “socialized” medicine, and as much as the locals complain about their systems, as an outsider with no medical insurance, I have to say, when I got sick in Canada and needed orthopedic specialty help, it cost me nothing but my insurance premium ($100/year 25 years ago, about $75 USD 1979 dollars) and it was damn good care, too.
When I got sick in the Netherlands when I was visiting, the office worker had to go on a hunt to find out what she should charge me and how she should do that, because I wasn’t Dutch, and finally she comes back and, extremely apologetically whispers that it will cost me 35 gulders to see the doctor… about 17.50 USD.
Whereas, when I got sick in the US two years ago and was unemployed (Texas is a right to work state, and honey, if you’re sick, you got no right to work…) and was hemorrhaging from my sinus and making frequent trips to the emergency room bleeding out in a truly spectacular show, I got the most godawful care you can imagine. I finally found a good samaritan ENT specialist who looked in my sinus and said “sheesh, I’ll cauterize this and that should fix it”, 10 minutes and it hasn’t done that since. I paid him every reasonable penny he billed me before I had to declare bankruptcy because I’d wiped out my savings and every other possible source of liquid assets paying off all those medical bills I’d incurred while I had no job.
60 minutes did a show a couple months back about an English doctor who started a remote medical care charity, bringing doctors to poor villages in remote parts of South America. He’s done a few in the US, and the turnout of desperate underemployed people and their families is so massive that they have to turn away people who’ve driven 200 miles to try and get help because there is just so much need. As an American I’m ashamed at how we don’t take care of each other.
my 2c.
Hi, Kelly —
I’ll defer to Bill (since he has firsthand experience) on how it works in other countries, but there’s one thing I do NOT want to see happen in this country: Medicare for everyone.
My Mom, who was 78 and rickety, but still living independently with my Dad (and driving a Corvette — I am not making this up), fell on the ice last December. I don’t have the energy to give you a complete recap of the whole ordeal, but just as a result of ONE FALL, an otherwise reasonably healthy person experienced a cascading series of progressively worse physical and mental health problems, and 10 months later, is in a death spiral with essentially no hope of recovery (MRSA and C-Diff infections plus various broken bones and other injuries, and a confused mental state that makes it impossible to do much to help her).
I am convinced that if she had been able to see the following:
– an internist
– a psychiatrist
– a physical therapist
every day since entering the hospital, and be closely monitored by same, she would have recovered and would be home now. But because the health-care system revolves around what insurance (public and private) will pay for, there is NO FACILITY that I know of where she could get some quality time with the above three professionals on a daily basis. None. There isn’t such a place. And this is in the Boston area — the home of some of America’s best hospitals, in one of which she is dying right now.
I don’t know how much Medicare has paid, over the past 10 months, for the combination of hospital, SNF, nursing/rehab, and long-term care that my Mom has been subjected to, but I’m sure it’s well into the hundreds of thousands of dollars (half a mill wouldn’t surprise me). And to what end? So she could end up getting thrown under the bus by a system where her medical decisions are made in Washington instead of by the facilities where she’s being treated.
This is not to say that I’m against national health care. I don’t know what I’m for or against, at this point. But given how badly Medicare-based elderly health care works, extending it to everyone would be a disaster. And that’s not even considering the cost, which would make the Paulson Plan look like dinner at Mickey D’s….
Urb
PS — as for individual policies, make them deductible. I do a lot of contract work, and even if I’m a W-2 employee working through an agency, I just pay for my own coverage, because I never know how long the contract is going to last. As long as you’re asking, sure, I’d like a tax break for that.
It’s unbelievable to think that any plan to improve the health care system in this country would include making paying for health insurance more onerous for individuals. I too count myself lucky to have a reasonably decent health insurance plan partially paid for by my husband’s employer. In no way do I consider that benefit of employment taxable income. Allowing companies a tax incentive to provide this benefit seams to be the very least the government can do. Sick employess certainly can’t work, neither can employees with sick children or spouses and no way to provide for their care.
Making oodles of middle class folks who are just hanging on at this point suffer an additonal tax burden just makes no sense to me. And I certainly don’t see how it will help the millions of others who aren’t so lucky.
Very interesting and thoughtful articles and the comments were just as good. My company pays the premium for our employees. We don’t do this with the thought that we are somehow saving money or “sick” employees don’t work or any of the other reasons cited. We do it because we can and we care about the folks that work with us. The 10 folks who work here depend on me to support them just as I depend on them to keep the doors open. However my employees have no choice in the matter of health insurance. They are covered. Period. If I gave some of them a choice of more pay per week or health insurance then they would take the more pay per week and I don’t feel that would be the best choice. I think companies ought to be required to supply health insurance to all employees (no choices left to the employee). Schedule C folks take it off the front page. And you either work for someone or you are self employed so that pretty well takes care of the tax breaks evening out for everyone. Of course there are the unemployed and those folks could be covered by a state or federal plan. But the real problem is the high cost of health care and I have absolutely no idea whatsoever how to solve that problem. As far the “foregone” revenue – that is basically nonsense. Every single solitary tax deduction allowed today to anyone, for any reason, is basically a “gift”. Congress does not have to allow one single, solitary one of them to anyone. They do and that is good. But they don’t have to. So all deductions are “foregone revenue”. And that problem does not seem to enter into any other tax deduction questions.
But while I am on the subject of employee benefits let me add that we also help pay education costs for our employees and their dependents, have liberal sick pay policies, give vacation time, have alternative work hours, life insurance and mileage for those of our folks who take work home with them and pay way, way over minimum wage – and as a result we do not have problems hiring qualified, “want to work” folks who are always willing to do more than we ask of them. We take care of them and they take care of the company. And that’s a pretty good formula – at least it has been over the past 30 years or so. And my heir apparent is reviewing additional benefits for the employees at this time of the year to put into effect the first of the year. Can’t wait to see what she comes up with……
Skip McQuaid
I would like to see health insurance become a individual purchase rather than a corporate one. Right now, either people get it through an employer, pay substantially more or can’t get coverage if serious medical conditions are present. Because of how risk pools work, it is beneficial to the insurer to have things work this way.
But what if the insurers could reasonably have a large pool of individuals? Then they would get the advantages of having a large pool to spread out the risks and they could offer inexpensive individual coverage. Unfortunately, it’s a chicken and the egg problem because until a large number of people are willing to switch, the insurers can’t make the programs as cost effective and until it is cost effective, a large number of people won’t move over. I don’t see a good solution- an idea would be to remove the favorable tax treatment, but that would be a loss if people stayed with their employers and employers just increased their premiums or reduced the coverage. So I don’t know a good solution.
Health:
Replace exclusion from income for employer sponsored health insurance with refundable credit of $2,500 for individuals and $5,000 for families who purchase qualifying health insurance
McCain’s proposed Health Care cut for Self-Employed individuals