Will health care premiums be taxed soon?
I was listening to NPR this morning on the way to work and a discussion brought me out of my daze. Apparently part of the “health care reform” plan backed by Obama includes taxing the employer-paid portions of our health plans.
I tend to stay out of politics because 1) I don’t do anything directly to influence them and 2) know that without participating in politics, I shouldn’t complain about them (aka “armchair politician”). But when I hear about something substantive that could affect my livelihood, my ears perk up.
In this case, the plan, which is ever-changing, is to tax a portion of your medical plan premiums paid by your employer. For those of you participating in employer health plans, you may not be aware of how much your employer covers out of their pocket.
For instance, we pay about $200 a month for our medical plan (I paid only $100 per month at my last employer). That covers my spouse and I. But while I might pay $200 out of pocket, in reality, that’s probably only 20%-50% of the total cost of my insurance. If you’ve ever shopped around for a medical plan out-of-pocket, you’ll know how expensive they really are.
That’s why this subsidized health care tax bugs me so much. One of the arguments mentioned on NPR was:
Because workers don’t pay taxes on health benefits received through their employers, they’re effectively getting benefits at a discount.
Um, excuse me, there’s no discount here. I need to have health insurance. While I know it’s an option, and many people do without it, it’s not one I’m willing to go without, especially after seeing so many lives ruined from lack of insurance coupled with debilitating accidents or diseases.
What am I getting a discount on? Just because the government thinks it should tax everything, it means I’m “saving money” by not paying taxes on these subsidized premiums? Apparently they’re comparing me to people who pay their full premiums out-of-pocket, or don’t have health care at all. How about instead of taxing me, provide a tax deduction that levels the playing field.
Supposedly this tax has a “good purpose”, which is to make the consumer more cost-conscious of health care spending. The flaw in this argument is that the proponents of the tax think the average consumer is 1) aware of the true cost of medical procedures and 2) able or willing to argue for lower prices or against inappropriate charges. Perhaps in addition to a personal finance class in high school, we should also require students to take a “Medical Billing 101” class?
Basically, Obama is using this tax to get around his promise to not tax those making under $250,000 a year directly by taxing indirectly. While I think the promise was stupid in the first place given all the spending of this current administration, why beat around the bush? Just tax us if you need the money! We know you’re going to eventually, so why lie?
What are your thoughts?
It is a discount. For people who have to buy their coverage outside of their employment premiums are paid with after-tax dollars. This is equivalent to a $300 billion dollar tax subsidy for employees (see US Senator Max Baucus “white paper” page 80-81) , and it’s regressive because it’s far more likely that the middle class/rich benefit from having insurance while the poor/working class have to buy their own coverage.
Consider as an example – we both make $100k a year. You get medical insurance benefits worth about $12k, I don’t.
We both pay ordinary income tax of about $21k, leaving us with take home pay in the $79k range… the difference is I then have to go out and buy my health insurance at the cost of about $12k. Meaning my actual take home is $67k – and the ONLY difference between us is that you get a fat tax break because your employer paid insurance premiums are discounted, and individually purchased insurance premiums are not.
I’m not sure that the poor class even buys health care coverage when if you make under a certain amount per year you are usually qualified to pick up the state offered medical coverage. So, the poor class doesn’t NEED to buy private health insurance they already have it. It’s the middle class that doesn’t qualify for state coverage so they have to pay for their own.
It’s already rare to find an employer who even offers benefits because they are so expensive, but now Obama is going to tax them and make it even more costly which makes it go away, and therefore makes the tax revenue generated from that go away also.
I work for a small family business (13 employees including myself) that provides the benefit of health insurance. It is something we choose to pay for our employees – they pay 20% we pay 80%. Its has not been easy in the last couple years as costs have skyrocketed but we have managed by cutting costs in other areas. But we know that this is one of the things that is keeping our workers from going elsewhere. The average salary of these men is about 40K and they would not qualify under state run health care. If we did not provide care, we are pretty certain they would not get care on their own. We do not have a cafeteria plan where the employees’ portion is tax free – they pay their 20% after tax. If the gov’t were to start taxing their 80% portion(in the case of a family it would be about $8500.00) it would be a travesty. They complain already about the increase of the deduction from their paycheck when the renewals come around. How are they going to feel when they get taxed on money they don’t even see? This indirect taxing thing by Obama for those under the 250K range is ridiculous.
James already stated the obvious point.
I’m a conservative who absolutely abhors new taxes.
However, I know I’m getting a benefit by having my health care provided through my employer. I’m not taxed on the portion of the premiums they pay, and my portion of the premium is taken out pre-tax (i.e. reducing my taxable income).
People who buy their own insurance don’t get that benefit.
The best solution would be to allow those who buy their own insurance take a tax deduction equal to their premiums, but we all know the government doesn’t want to lose that money.
The only way they are willing to level the playing field is to tax employer based coverage.
The problem is that once you “fix” this, there really isn’t any incentive for employers to continue offering health care for employees.
Some might opt out not wanting to pay taxes on that income. If enough opt out, it lowers the bargaining power of the employer to get the best price for the insurance.
What’s the best solution? I don’t know, but I definitely know that it does not involve the government creating a competing health plan.
I agree 100% with Shawn. I never thought of it like that — that employees would opt out of the health care benefit we offer. Obama wants to tax the health care benefits so that more people will choose the government plan. Its going to be a disaster.
Sweet! Who voted for change!
I truly believe Obama is a Socialist at heart. He may want to blame the last administration for the problems we are facing today (and he may not even get an argument from me…to an extent), but the gov’t taking over health care, like they have done thus far to the auto industry and financials WILL NOT SOLVE ANYONE’S PROBLEMS.
FYI, I think the intent is taxing the employee, not the employer, so it wouldn’t hurt the employer to still offer the subsidized benefit.
CD – I agree that it won’t hurt the employer directly. In my case it would help us financially – we wouldn’t have to pay the 80% for the cost of the health care the employee. But if our employees choose the gov’t health care and have to wait weeks to get treated then that is where it will hurt the employers.
My contribution to my health insurance is about $2,500/year, paid in pre-tax dollars. If that represents only 20% of my health care cost, then we’re looking at an additional $10,000/year of taxable “income”. I’m not debating that I’m getting a better deal than someone who pays with after-tax dollars. What I’m getting at is this: I make under $250K. This is an indirect tax. Did you hear that? That’s the sound of another campaign promise broken.
@CD, if enough employees opt out of employer coverage because they are now taxed on income they never see, it could reduce the negotiating power of the employer to get the lowest price for the insurance.
If the cost goes up enough, then the employer will stop offering the benefit.
I pay $1200 a month for my health insurance with a $500 deductible. About 50% of it is deductible under current law. The rest is deductible to the extent that it, along with the rest of my out-of-pocket medical expenses, exceeds 7 1/2% of my Adjusted Gross Income (AGI). I can access any doctor, anywhere in the country for any problem. I don’t mind paying a lot of money for great benefits and the current health care tax deductions are reasonable. What I DON’T want is government meddling in my relationship between me and my doctor(s). That includes taking away my current tax deductions…this is nothing more than an Obama lie. I make a lot less than $250,000/year, yet I will be paying more taxes! And, for less benefit!
i had a whole big reply written up, but forgot the email and it deleted it all.
here is a recap of it:
1. RICO act the insurance companies. foreign countries with private coverage have longer life expectancies but at way lower costs…it doesn’t add up
2. reform medical lawsuit laws, and lower of medical malpractice coverage for doctors.
3. allowance of medical students who have outrageous college loans to repay their loans after 5 years of medical service so they do not burn themselves out trying to repay their loans at the cost of their patients well-being.
if anyone cares for me to elaborate, i will reply…it was a really good one, i promise.
@ Chris
Expand on #3. Not sure what you mean.
#2 would do wonders for lowering the cost of health care in this country. A doctor’s biggest expense is malpractice insurance. Get rid of frivolous lawsuits and put caps on judgments. The most egregious acts of malpractice should be punished, but most lawsuits are because people don’t understand that medicine is not an exact science.
As far as #1, I think less regulation would help. Allowing people to shop across state lines for insurance would create nationwide competition. The problem is that each state mandates what policies in their state covers. So, if you live in a state that forces insurers to provide for fertility treatments, then all people who buy insurance in that state must subsidize that. Allow people to buy only what they need and add other things ala carte — prices should come down.
#3…doctors have BIG college loans ,and takes them years to pay them off…yeah i know, so does everyone else…but unlike those people, doctors are saving people’s lives….why have them burning candles at both ends to pay off loans
#1…
utility de-regulation has been a nightmare.
now imagine if health care coverage did the same thing…so say you buy package a….which doesn’t include xyz….but then something bad happens, and your spouse needs xyz….can you imagine the out of pocket….not a good idea.
Chris, your point #3 (student loan debt) is a major factor in the problem we have with doctors choosing to specialize instead of entering primary care.
I understand that we don’t want government take over of healthcare – that is NOT even on the table. What we’re likely going to get is a mandate that everyone has to have coverage and then subsidies provided to the middle class people who make too much to qualify for medicaid, but too little to be able to afford $10-12k a year for family coverage.
Find me a family in the $40-50k a year range that has $12k free in their budget. Even if they have no consumer debt and cancel their cell phones, cable tv, run the heat at 60 degrees all winter, there’s no way they can afford it.
We do have to tackle the cost aspect of insurance. Someone tell me why an MRI in Japan costs $100 and here it costs $1000. There is no insurance solution that’s going to work without a cost containment solution. Insurance costs are up 117% in the last decade and are expected to continue on this steep trajectory as far into the future as can reliably be predicted. That has to stop, and I don’t mean rationing. I mean recovering excess costs that medicaid pays out to private insurers (it’s corporate welfare pure and simple). It means taking a look at executive pay – why should Bill McGuire make 430x the average income for running a medical insurance company?! He resigned 2 years ago over a stock scandal and got a $1.1 Billion golden parachute. 1 in every 700 spent on healthcare went to him in 2005! Think about that for a minute.
i agree with ya james there except i am all for national health care for low income/people who cannot afford it on their own.
the less amount of people who are ill will just make us a stronger country.
think about if you have kids…people who don’t have health coverage send their kids to school sick, and they get every other kid sick, and well, that costs you sick days staying home with the kids.
think about grocery stores and where you eat…you think all of those people working there have coverage behind the scenes…i bet their illnesses travel with the food you consume.
and as for medicare/aid…that would be a solid system if it did not continue to get pillaged along with social security by our greedy govt on both sides of the isle to pay for their pet projects.
i believe in more regulation, instead of less…less leads to corruption, and just more costs out of our pocketbooks.
I have to address the common misconception that Albert showcased: That poor people, as a whole, get the state to “pick up the bill.”
Albert has, clearly, never had to investigate welfare or anything similar. When my husband got laid off, we tried to see if he could qualify. We quite literally CANNOT afford to have him without it. He has chronic health conditions.
In Seattle, where the average one-bedroom apartment is now hovering at $700 (often more), a couple can make $1400. (In light of the economic downturn, it was increased to $1700ish.) For an individual, it was around $800.
If you earn the minimum wage ($8.55) and work 25 hours a week, you wouldn’t qualify. This is why there are terms like “Working poor.” They make too little to survive, too much to get help.
That said, I think taxed benefits is not a good way to go. I found it quite amusing when everyone was decrying a national plan that would be similar to Medicare. Sure, Medicare has a lot of problems. But here’s the deal: For a relatively modest amount ($90 a month) you’re covered. If you want better care, you can buy a better plan. But everyone will be covered.
The effects of this?
Employers will have more money to hire employees (or at least not fire any)
The government won’t be spending money helping hospitals that deal with poor who can’t pay. (Both as charity and as non-payment.)
People will see doctors more readily, which means fewer big medical bills. (People routinely die of things like staph infections. Others wait until they’re so sick, the bill is HUGE and they can’t pay.)
Again, hospitals won’t have to cover so much of these bills.
A healthier America, which includes better ability to work (thereby paying taxes) and fewer preventable illnesses, such as diabetes 2.
But I think it could have a huge impact on this economy. Employers have more money to keep employees/give raises. More jobs/more money equals more taxes.
And incidentally, self-employed people DO get a tax break for paying their health plans. It’s not big enough, in my humble opinion. But it’s there.
Oh and by the way, my husband’s insurance through the Washington State Insurance Pool (thanks to repeated MRSA infections, he was rejected by insurance companies) is $502 a month. We earn just under $3300 a month. So with our rent and his insurance, more than one-third of our income is gone.
Finally, I think we should subsidize medical school educations, which would enable doctors to charge less. And, if everyone were covered, the medical costs that did still trickle down would be significantly smaller.
I just received a review of benefits from my employer. My healthcare package is worth $30,000 dollars for my family.. If I had to pay income tax on this I would be unable. I would then have to drop my insurance coverage. But I make too much money to qualify for the government handout. Obama will in effect make me uninsured. I cannot afford to pay an extra $800 per month in taxes. I put two kids through college with no help in the form of grants…I make too much money!! ha ha….I am single….barely can pay for a drop of fuel oil. What is wrong with Obama that he thinks the middle class can pay more taxes? He is the single worst president this country has EVER seen.
I am a single mother that provides health/dental/vision insurance for my 3 children and myself. I make about 60k a year I pay $400/mo for health ins and am being taxed on $900/mo. I was barely making ends meet before and now I am bringing home less in my paychecks. I have always worked for everything I have and have never had to take a hand out from the government. I am seriously considering quitting my job, and marching straight to the welfare office and section 8 office. With 3 children I could sign up, sit home, relax, enjoy my family and allow hard working underpaid people like myself to pay enough taxes to support me and my kids. Welfare will provide health insurance with no co-pay and plenty of food stamps to stock my cabinets. Then section 8 will pay for a roof over my head with enough bedrooms that my children wouldn’t have to share a room any longer. Don’t forget the electricity allowance that they will provide to me and the electricity program LIHEAP to cover the rest. Then I could also sign up for the YMCA program that will allow my children to attend summer camp for $5/week because I have no income (even though I could take care of my children myself with no job). All the while hard working tax paying people are struggling to find family, friends, neighbors to care for their children during the summer so they can continue to work and pay for others to sit at home. Seriously America when is it time to take a stand and say enough???? Get your capable BUTT out of the house and flip burgers if you have to…. I am tired of struggling and paying for these people with my tax money!!!!!!!!!!!!
IS ANYONE WITH ME?
Angry single mom, You should feel happy about how much the government allows you to have. Maybe we should just give them our whole paycheck, and they can possibly give us an allowance, if we qualify. Remember we’re at the apathy stage in this country. Start taking away our rights, a little at a time, no big deal. Right? Sure government health care sounds great, because we all know how cost effective the government is at running things. I’ve paid health insurance my whole life and I’ve probably been to the doctor about twice, when I needed it. But I can see the day coming, government takes over health care and I need to see a doctor, I’ll be waiting how long while every illegal goes in for a sniffle, why wouldn’t they it’s free. Anyone who thinks government can do a better job than people who are financially motivated, well they are the problem, they are the ones who elected this moron.
I think the proposal to tax employer paid benefits is another slap in the face to those of us that play by the rules, take responsible position and live within our means, much like the “mortgage restructuring” plan the administration pushed to solve the mortgage industry (foreclosure) crisis. This proposal punishes those who have made a conscious decision to enter industries that might pay less but offer more in the way of benefits, including a healthcare package. I have friends and relatives that have entered more lucrative fields and rolled the dice regarding their health and lack of insurance. Now, because I would not take that risk, I should be penalized?
I hear all these complaints and they are valid ones, I am just wondering why other nations don’t have this problem? Moreover, why are these nations ranked higher in healthcare than America? Before you say “I don’t want the government to get between me and my doctor” YOUR INSURANCE COMPANY already does. I would totally be for privatized healthcare, but you need to make hospitals be able to turn away the non insured. This is why premiums are so high. Who do you think covers the loses? Ahh your tax dollars…
I hate being taxed. When my son asks for me to buy him a new toy I have to ensure I have enough money. When all of the American’s received a tax cut (Bush’s Tax Cuts) they were not paid for! Furthermore, we went to war that was not paid for. I am not blaming Bush and pardoning Obama, but please Americas please, accept responsibility for yourself and don’t just blame the current Administration.
Angry Single Mom/ Brandon,
Who pays for these illegals going in for the sniffles? Please don’t tell me you believe in these “death panels”. Do some fact checking and you will see that these nations with nation run healthcare are BETTER than USAs. Also why do surgeries cost less outside of America? Google Vacation Surgeries. Another example would be an emergency which you have to take the ambulance…insurance typically doesn’t cover it. Then you are stuck with a $400 + bill. Other nations this is free. What would happen if your house caught on fire, the fire truck came but the house burnt down. Then the fire department sent you a bill for their services.
Profits and life do not mix.
Last request PLEASE fact check anything you hear in the news…
Hmm…take the advice from a Nobel Peace Prize winner in economics, or a economic plan devised over a couple of drinks (trickle down economics)?
Here’s another one to add to the list of false claims about the new health care law.
It’s true that the value of employer-paid health insurance will be added as an information item on W-2 forms. But contrary to this widely circulating chain e-mail, it definitely will not be considered taxable income.
Readers who followed the 2008 presidential campaign may recall that it was Republican candidate John McCain who proposed to make the value of employer-sponsored health insurance taxable. Democrats hated that idea; Barack Obama ran an ad claiming, falsely, that it would be the “largest middle-class tax increase in history.”
So it is ironic that some of President Obama’s critics now claim that the bill he signed would do what his opponent proposed and he denounced. Ironic, but false.
The e-mail’s author correctly quotes a Congressional Research Service summary of the bill that became law (H.R. 3590), noting that Section 9002 “Requires employers to include in the W-2 form of each employee the aggregate cost of applicable employer-sponsored group health coverage.” But the author then goes on to conclude — quite incorrectly — that this amount will be “added to your gross pay” and that “[y]ou will be taxed on the total.” The CRS did not say that, and neither does the legislation itself. In fact, the value will continue to be untaxed, just as in the past.
The e-mail’s author also claims that an article written by Joan Pryde, a senior editor of the Kiplinger letters, backs up the claim: “Go to Kiplingers and read about 13 tax changes that could affect you. Number 3 is what I just told you about.” But the truth is that the Kiplinger letters actually contradicts the claim.
Pryde’s article is dated April 5 and is headlined “Health Care Reform: Tax Hikes on the Way — Here are 13 changes in the massive overhaul that could impact your tax bill, for better or worse.” Among them:
3. A requirement that businesses include the value of the health care benefits they provide to employees on W-2s, beginning with W-2s for 2011. The amount reported is not considered taxable income.
The author of this false e-mail seems to have missed the second sentence in that paragraph — the part that says the amount “is not considered taxable income.”
–Brooks Jackson
Sources
Pryde, Joan. “Health Care Reform: Tax Hikes on the Way.” Kiplinger letters. 5 Apr 2010.
United States. Cong. Senate. 111th Congress, 2 nd Session. H.R. 3590, “The Patient Protection and Affordable Care Act.” (Enrolled as Agreed to or Passed by Both House and Senate). accessed 26 May 2010.