Sunday, July 12, 2009

Employer paid health care: to tax or not to tax?

Two opinion writers in the New York Times recently offered two very different perspectives on proposals to tax employer-paid health insurance benefits:

Roger Hickey argues: Don’t Tax Benefits says that doing so would jeopardize coverage for workers. Professor Jon Gruber of MIT writes that the tax exclusion for employer-sponsored insurance is A Loophole Worth Closing

There's no such thing as a free lunch.

Even if Congress does not move in the direction of universal health care coverage for all Americans, the current patterns of deficit-spending are not sustainable indefinitely in the future. For the past year, the rest of the world has been falling all over itself to lend our government money at phenomenally low interest rates, but this situation is clearly not a long-term equilibrium.

In addition, if Congress wants to make it possible for all Americans to have the same health care coverage that they themselves do, the money will have to come from somewhere, since many uninsured Americans, especially those with chronic illnesses, can not acquire insurance without some sort of government subsidy.

Those of us who are fortunate enough to have employer-provided medical insurance are already getting a significant implicit subsidy via the tax code, a subsidy that is not available to those whose employers do not provide medical benefits, as Professor Gruber points out.

If society feels that all Americans should have access to some sort of subsidy for health care purchase, the question becomes: if you don't want to tax employer-provided health benefits, how do you want to raise the necessary revenues instead? There are a variety of possibilities: closing other loopholes in existing tax law, raising marginal tax rates for some or all taxpayers, a value-added general consumption tax (which many other countries use to fund their health plans), a specific tax on purchases of goods deemed "unhealthy" (e.g., soda and junk food), and the ever-popular cutting "wasteful" government spending. No matter what approach is taken, there will be opposition from some quarter, and the hard reality is that it may take multiple approaches combined to raise enough money to guarantee universal health coverage for all Americans.

There are no easy painless answers.

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