Wednesday, July 08, 2009

Taxing Health Benefits

What's that all about? And how can you possibly make the topic interesting?

That's how I imagine a hypothetical reader (with quivering antennae on planet zfgv34) might react to the title of this post. My rude answer to that reader would be that brains must be exercised, just as muscles, and that I'm not a clown who dances for the pleasure of aliens.

Where was I before I so rudely interrupted myself? Oh yes, taxing health benefits. Well, some very lucky people get health insurance from their employers, and the employer pays a portion of the costs of that package. That employer-paid portion is currently not viewed as taxable income. The Republicans want this changed in the new Obama health care proposal but the Democrats are having second thoughts:

--Senate Democrats are increasingly resistant to proposals to tax some employer-provided health benefits, threatening already fragile bipartisan negotiations over legislation to overhaul the U.S. health-care system.

Sen. Kent Conrad, D-N.D., said that public polls conducted over the July 4 congressional recess and reviewed by senators are causing lawmakers to have second thoughts about limiting the tax exclusion for employer health plans.

"It remains a significant option, but we're looking at other options," Conrad told reporters Tuesday. "When you go out and ask people across the country, their initial reaction is, they don't like it."

Taxing employer-paid health benefits could be used to partially finance the care of the currently uninsured. That's what the Republicans want to do. It's odd that they are suddenly pro-taxation, unless one views it as an attempt to kill any health care reform. Or unless one realizes that some other taxes (most probably on the wealthy) would have to be raised if this particular funding plan is torpedoed.

Opinion polls suggest that people don't want the health benefits taxed.

Here's the problem with taxing benefits which have not been taxed in the past: The extra tax makes health insurance more expensive than it was. It's as if the price of coverage has risen. And when the price rises, people, on average, will buy less of the product. So in theory at least the taxing of health benefits could reduce access to health care by some while the same taxes are being used to fund increased access for others.

Whether this would be true in practice is harder to say, because employer-paid health insurance is a fringe benefit more common for the higher earners among workers. Some of those may well have completely adequate coverage even after some retrenchment. At the same time, focusing on the employees as the group to bear a large share of the cost burden seems sort of...classist.