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Employer tax exclusion: to have or have not

Posted by: Julia Eisman on Oct 08, 2008

Businesses large and small are less than thrilled aboutSenator McCain's plan to make health benefits taxable income for workers.Senator McCain proposes instead to offer tax credits, $2,500 for an individualand $5,000 for a family, so workers can purchase coverage on their own in theprivate market . . . a place McCain sees as a virtual Garden of Eden offering"choice" and "competition" to all who step inside. 

But the business community isn't really biting the apple, according to KevinSack's recent NewYork Times article:

The business leaders forecast that Mr. McCain's free-market approach would impose particular burdens on small businesses and old-line manufacturers that are already struggling. "To some in the business community, this is very discomforting," said R. Bruce Josten, executive vice president for government affairs at the Chamber of Commerce. "The private marketplace, in my opinion, is ill prepared today with an infrastructure for an individual-based health insurance system."

Here's the deal. Since 1954, workers haven't had to pay taxeson the health benefits they get from their employer. This tax "exclusion," accordingto Sack:

. . . has encouraged the pooling of workers into large purchasing groups that tend to lower costs. And with group coverage, no one can be denied coverage, everyone pays the same rates and the healthy and wealthy essentially subsidize the sick and the poor. Consequently, it is often more expensive to buy equivalent coverage as an individual. . . .

Currently, there are about 170 million Americans who receivehealth benefits through their employer. Undermining that system would leavemany at the mercy of an unregulated private market where they may be charged exorbitantpremiums or denied coverage altogether. 

In addition, while McCain touts his tax credits, he fails tomention that your average family plan costs more than $12,000, so a $5,000 taxcredit leaves you more than $7,000 short.

Someargue that our current system isn't all it's cracked up to be, because ifyou buy insurance on your own, you don't get a tax break as you would if youhad employer-sponsored coverage. This may be true, but is dismantling theentire system the way to go? No. There are avenues for broader health carereform that will allow individuals to keep their current coverage, while alsomaking health care accessible and affordable to those who don't get coveragethrough their employer. 

Employer-sponsored coverage is a way for businesses toattract workers and compete in a global economy. At a time when the economy isalready struggling, let's not take away a provision that businesses andindividuals rely upon for health and economic security.