Tuesday, January 23, 2007

If you tax it, it will go away....

Much is made of the low rate of medical insurance in the media. A large number of those who are uninsured are young, healthy, and have chosen not to insure themselves. President Bush is going to propose tonight that medical insurance premiums should be deductible on your federal income tax. Ok, so far, so good, but here is where things get sticky. He also plans to propose that the IRS consider employer paid premiums as taxable income. This is a VERY BAD IDEA. Instead of encouraging people to take advantage of employer offered insurance it is a disincentive. Employer offered insurance is cheaper than individual policies because the risk is spread around, It is also easier to get for those who may have a medical condition such as myself. By taxing the income, they encourage employer to stop offering insurance. Instead of making the situation better, it will make the situation worse.

2 Comments:

Blogger Kevin said...

He also plans to propose that the IRS consider employer paid premiums as taxable income. This is a VERY BAD IDEA. Instead of encouraging people to take advantage of employer offered insurance it is a disincentive.

Early reports indicate that not ALL employer paid premiums will be treated at taxable income, but rather premiums over a certain amount will be taxable.

In my view, that's likely to have a net positive effect, and here's why -- the 2003 Medicare reform that libertarians and many conservatives just LOVE to bitch about contained a great market reform: Health Savings Accounts coupled with high-deductible insurance. Those packages tend to be MUCH CHEAPER than the traditional buffet-style insurance, but put some of the burden of controlling spending on the healthcare consumer. Because they are cheaper, those sorts of plans will in almost all cases fall under whatever amount the president is proposing for income tax deductibility. The net effect will be more people moving into plans that encourage more responsible consumption of healthcare. In my view, anyway...

January 23, 2007 11:15 AM  
Blogger Rorschach said...

IF that is the case, and that is yet to be seen either way, that might be a bit more palatable. But I'm concerned that what the net result will be is to disincentivize joining employer insurance programs by the young and healthy. Thereby leaving only older and statistically less healthy people in the plan. People who are net USERS of the system. That would make it difficult to spread the cost to healthy people who won't use the system for a while. It's still a bad deal for them since they are supporting all the people who DO need the insurance, but not as bad a deal than if they had to pay taxes of the premiums too. Whatever system is settled on, it has to make it easy and painless for the healthy to sign on, otherwise the premiums will have to be sky high for those who do sign up. I'm afraid taxing the premiums will be detrimental to that cause.

January 23, 2007 12:07 PM  

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