The truth about the controversy surrounding taxing health care benefits and related employer issues for health care reform

Whatever side you are on about the issue of leaving health care benefits alone or repealing their tax exempt status, I will attempt to clarify some of the issues.

I don't understand the vociferous criticisms of taxing health care benefits. Here's why: The average person likely does not realize that the tax incentive for employers to offer health insurance mainly benefits high income employees. That is, because the monies given as a health insurance benefit are untaxed.

Therefore, if you don't pay much tax, you don't get much benefit. You think you are getting "free" insurance from your employer, but you are actually getting paid lower wages than you would otherwise. Thus, eliminating the untaxed healthcare insurance benefit eliminates a wealthy person giveaway. For example, if you assume the average family of four insurance cost of $12,000, a high bracket employee would save approximately $4000 in taxes. A lower income earner would not pay much tax, and therefore would not get much of a benefit. Why are we subsidizing the wealthy with our 100 billion dollars in tax breaks?

However, if you eliminate this benefit, you must compensate for it or things will be worse off than the status quo.

1. You must require that employers still give a benefit for healthcare insurance that is equal to the amount to what they did in the previous year, or increase the salary of each employee by an amount equal to what they paid in insurance benefits the previous year. Employers must not be allowed to interpret the taxing of benefits to mean that they no longer need to offer health insurance benefits.
2. You must replace the tax benefit with a sliding scale credit that will benefit the poorest americans.

If the above protections are not put into place, the likely result will be an eroding of the employer supported healthcare insurance base. While not perfect, the employer model of distribution of health insurance insures millions of people and undermining this would be counterproductive when the goal is to have more people insured. This potential underlies the basis for the criticisms to tax healthcare benefits.

Even with the protections, the likely result of a healthcare market/exchange combined with removal of the tax-protected status of health care benefits is that employers will no longer provide health insurance to their employees. They will provide money that will go into a health care account that is used in the market/exchange. The burden of providing healthcare insurance to their employees will be lifted. This is a good thing. For healthcare. And for the economy as a whole.

Employer mandates for coverage vs. fines for not participating
I guess this comes down to a societal moral argument: "Should employers be responsible for giving healthcare to their employees?"

Back in the day, employers covered their employees not out of obligation, but out of necessity. If your employees were healthy, they'd be more productive. Productive companies made more money. It's that simple. The irony is that what was borne out of a need to improve their profit margins and recruit superior talent, now stifles profits and drives companies to foreign countries.

If employers want to recruit top talent, I think providing a health insurance benefit would be of value, and for that reason, employers will continue to do this voluntarily. However, should they be obligated? That is a whole 'nother issue.

As I said before, to prevent significant loss of insurance coverage, companies that offer benefits should continue to offer a monetary subsidy for health care coverage. So I'm going to set aside the standard argument that we should just let unfettered capitalism determine whether companies offer coverage. Whether that is superior or not can be debated by economists. I'm dealing with the reality of trying to cover all americans in a system where corporations already pay much of the freight.

Both the House and Senate have various versions of bills that will penalizes companies that don't offer coverage. The House version penalties could be upwards of $4000 per employee, whereas the Senate version charges $750. A big problem I have with the house version is that it charges based on size of the payroll. What if the company is losing money? They still have to pay a fine? IF there is such a penalty it should have some "outs" for companies making below a certain threshold (or not making money at all). Also, the threshold for small businesses is way too low. In this economy, small businesses are already struggling, and you are going to tax their payroll? The likely result is lower payroll, and thus, slower growing companies, and slower improvement of the recession.

My problem with the Senate version is that all companies are fined exactly the same amount without regard for profitability. I don't love the idea of fining companies for not paying into the health insurance market. However, if we as a country decide that there needs to be a shared responsibility amongst various sectors of society to give all americans health care coverage, then corporations are part of this. And corporations that don't participate become a liability to getting this coverage. We just have to make sure we don't do this at the expense of corporate health.