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Thursday, January 07, 2010

Small Biz Health Care Daily: Taxing Health Plans

The January 6 Washington Post offers an interesting article on the Senate proposal to hit businesses offering high-cost or high-dollar health insurance plans with an excise tax. Specifically, health care plans for a family of four that cost at least $23,000 a year would be hit with a 40% excise tax.

Three points brought up in the Post article are worth highlighting:

• “When the legislation would go into effect in 2014, only a small fraction of all plans would be taxed, but more would be captured over time: roughly a quarter by 2019, collecting about $150 billion over 10 years.”

• “Health analysts recently questioned the assumption that the tax would target only the most lavish insurance packages, nicknamed ‘Cadillac plans.’ The analysts, writing in the journal Health Affairs, found that some less-generous plans could be taxed because they are costly for other reasons. The location of an employer and the type of industry, for example, have as much to do with the cost of plans as the generosity of the benefits and the kind of plan. Smaller businesses, especially those with a preponderance of older workers, tend to have higher premiums, as do certain industries, including the health-care sector. The Senate bill would phase in the tax more slowly in some higher-cost states and exempt a few industries that tend to have expensive plans, such as mining. But opponents say it is impossible to find a workable way of targeting the tax so it would spare people whose plans are not particularly generous.”

• “Some economists also doubt that employers would shift savings from health care into wages, given how slack the labor market is likely to be for the foreseeable future.”

The remainder of the piece is largely off base in terms of individuals favoring the imposition of higher income taxes on upper income earners, and the arguments against more consumer direction in health care spending.

In the end, taxing high-cost or high-dollar plans is not the right way to correct the tax bias related to health insurance. That would be done by either equalizing tax treatment of health care spending by allowing everyone to purchase health insurance with pre-tax dollars, or removing the deductibility for all as part of a larger effort to overhaul the tax code that would dramatically cut tax rates and simplify the system.

Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council

1 comment:

Anonymous said...

nice post. thanks.