Kelly: Don’t tax my health care, now or ever
July 21, 2017
Despite the messy state of health-care reform, we owe the Congress a “thank you” for at least one aspect of their current efforts to amend the Affordable Care Act.
Lost in the sea of divisive policy is a big win for workers and their families. Although both chambers of Congress took a long, steely-eyed look at taxing employees on their health insurance premiums, they’ve backed away – for the moment.
Nevertheless, the issue won’t die. Taxing employees on their health insurance is a policy darling of influential conservative think tanks and political strategists. The idea will likely resurface as part of any comprehensive tax reform effort, one that Congress might embark upon later this year or next.
And to that I, and 177 million other Americans who get health insurance through an employer, have this to say: Don’t tax my health care. Not now, not ever.
Let’s be clear on this: A tax on health insurance is a tax on workers. Under existing tax law, employees pay neither income nor payroll taxes on their health insurance premium values. Employers do not pay payroll taxes on the premium payments.
That’s a huge deal, especially for employees. It’s not uncommon for the value of a worker’s health insurance to exceed $10,000 annually. If employees were required to pay taxes on that amount, or even a portion of that amount, it would substantially increase their tax burden.
To read this article in one of Houston’s most-spoken languages, click on the button below.
If employers were required to remit additional payroll taxes on that amount, they’d likely slash benefits to avoid triggering the tax.
Unfortunately, the idea of taxing employees on their health insurance continues to command attention in Washington. Some policy makers and think tanks deride the fact that not taxing health insurance “costs” the federal government nearly a quarter trillion dollars annually. They call it the single largest tax “expenditure” in terms of lost tax revenue.
It’s offensive to working Americans struggling to pay basic living costs, send kids to college and heed government exhortations to save more for retirement, for policy makers to suggest that Washington needs to tax their health insurance to close a tax “loophole.”
In addition, taxing health insurance – because the tax would be triggered at specific premium thresholds – would hit first and hardest health plans that tend to have higher premiums. Plans covering blue collar employees (those plans often have lower deductibles, partially as an offset to lower wages), or covering predominantly women, retirees and employees with large families would be most heavily impacted.
Some say taxing health insurance will drive down health costs because health plans are too generous. A tax, they say, will force employers to slash benefits (to avoid the tax). Higher deductibles will encourage families not to see their doctors and thus decrease health-care utilization. As demand for care falls, so too should the price.
Taxing workers on their health insurance won’t reduce health-care consumption. Many employers already offer high deductible health insurance plans. Statistically, a very small portion (13 percent, in the case of our clients) of enrollees in a group health insurance plan account for nearly all (82 percent) the plan’s claim cost. These people – the sickest of the sick – are going to consume that care no matter what their deductibles are.
Don’t worry, the think tanks say. Employers who slash benefits will make up for it with additional cash compensation! The person who believes that has never had the responsibility to manage a corporate budget. Lockton’s own survey shows the vast majority of employers won’t react the way the think tanks think they will.
We applaud Congress’s efforts to try to improve the nation’s health care and health insurance. Such efforts, however, must build upon what currently works well. Congress should first “do no harm” to the group health insurance market. Taxing employees and employers on health insurance premium values would do substantial harm. Now is the time to take action: contact your representatives and tell them, “Don’t tax my health care. Not now, not ever.”
Kelley is chairman & CEO of Lockton Companies, Texas.