According to the AP (via Yahoo):
The Republican presidential nominee-in-waiting has proposed that everyone buying health insurance get a refundable tax credit, $2,500 for individuals and $5,000 for families. At the same time, he would treat employer contributions toward health insurance like income, meaning workers would have to pay income, but not payroll, taxes on it.
The article discusses that the proposal, if enacted, would have a detrimental effect on employer-provided health care plans. Seems that younger, healthier employees would opt out of those plans and choose individual plans, leaving older, sicker workers in the employer plans.
I think the employer plans are doomed for another reason: the taxation of the employer contribution. Employee benefits such as these have been tax free for as long as I can remember, provided certain criteria is met. To have employees pay taxes on the benefit is, to me, an inducement for them to leave the employer system.
Who benefits from this? Why, that would be the insurance companies. The cost of individual insurance is significantly higher than that of group plans, mainly because of the risk. When writing a group policy, insurance companies are able to spread the risk amongst the group members, but when writing an individual policy, only the risk of that insured is considered.
Another point: it appears from reading McCain’s website that the tax credit he proposes will not apply to individuals who have employer-sponsored health insurance. Another incentive for employees to leave those plans.
If, by some chance, John McCain is elected, we have to make sure that the Democratic-controlled Congress doesn’t buy this garbage. It’s truly a dumb idea.
(thanks, spotter)
VIVIAN J. PAIGE | All Politics is Local 
I think the overall GOP plan is to remove as much employer exposure to health care costs as possible, while making sure that the gov’t doesn’t pick up any of it. That way, the US corps can better compete with the EU corps (who generally don’t have to pay health care costs). The end result is that corp profitability is further enhanced by shifting more costs to the individual.
Any government-sponsored health-care plan encourages employers to drop their plans. Medicaid has done the same thing. Many employers allow retirees to purchase health insurance through the company plan, but only until age 65, when Medicaid takes over.
Oddly enough, we are again looking for a government solution to a problem that the government caused. It was government’s freezing of wages in a tight labor market that resulted in the companies’ offering health insurance as a benefit. This, along with the ridiculous idea of taxing corporate income, has, as MB noted, significantly reduced the competitiveness of U.S. companies. (Of course, the people pay for the insurance one way or another. They pay through higher taxes, lower wages, or higher prices. And with so many people having stock through 401(k) plans, they pay through lower corporate profits.)
Now, part of your analysis is faulty, Vivian, and by your own words contradict yourself:
With higher risk comes higher payouts, and thus less profit to the insurance companies. If you can find some data that shows that insurance companies have higher profit margins (not just gross income) from individual policies, such data would better illustrate your point.
The problem with corporations’ providing health insurance is that employees have few, if any, options. Employers choose policies that fit them, not the employees. If individuals get to shop for insurance, they can choose a policy that fits their needs and economic situation. They can choose a low-cost, high deductible policy, or a high-cost, low deductible policy. An older couple can opt out of prenatal coverage, while a Catholic couple might want lots of it and no AIDS coverage.
Though it is easily demagogued, and thus a losing campaign issue, McCain’s proposal is a half step in the right direction.
The Problem with US health care is that it is paid for mostly by employers, who get to choose the policies to suit his needs. The only reason your employer makes that choice for you is the overwhelming tax advantage employer based groups have over other groups, paying for your health insurance with pretax dollars with money that is not taxable to the employer either.
Think of your last dealings with your health insurer or HMO. Would you put up with that from your auto insurer? Of course not, you’d be on the phone to the Gecko or Good Hands to change your insurer before the ear piece was cold. But with your health insurance, you can’t, because you don’t get to choose. Free markets only work when people can choose.
If instead, all group plans were paid for with pretax dollars, you could choose between plans offered by your employer, your church, your professional organization, your bowling league, your political party or whatever. With each of us having several plans to choose from, insurers would have to start treating us better to keep our business, just as you or I must do in our businesses.
There are better ways to do what McCain wants to do, but breaking us free of the monopoly of employer sponsored plans by treating all plans the same for tax purposes is a good thing that would go a long way to control costs and improve service.
Don, just changing the taxation will not change the fact that the employers are contributing to the payments, making employer-sponsored plans a much better deal.
Mouse – first of all, it’s not Medicaid that kicks in at age 65 – it’s Medicare. Historically, age 65 was considered retirement age, thus the cutoff for eligibility for company-sponsored plans and the availability of Medicare. However, if you think that folks on Medicare are not also paying for health insurance, think again. Many of them have opted to take supplemental policies, since Medicare does not cover everything.
Don – employees already can choose to participate in an employer-sponsored plan or not. If they don’t, they get a tax deduction for it. No, it’s not an “above the line” deduction, but it is there.
(As for pre-tax – your use of the term is a curious one and not the norm in terms of usage. Employee benefits are tax deductible by the employer, generally not considered “pre-tax.” ) Regardless, are you advocating that all employee benefit-type deductions be tax deductible? If so, what about such things as life insurance, which currently are not deductible by the individual?
because this is such a “dumb idea”, what kind of health care plan would you endorse?
The awful truth.
Alternatively “my opinion” which is just as awful.
American industry can not afford to compete with global industry that can employ numerous workers that do not demand healthcare expenses be included in the costs of production. Foreign workers are already willing to work for less, and they do not expect to live forever at the cost of the corporation.
If America wants to provide a health care solution, it can not come at the expense of industry. Those that live here must pay, not those that employ people here must pay.
So, to review – pieces of paper are more important than human beings. If human beings stand in the way of pieces of paper, we will discard them.
It would be funny that those voting for the politicians pushing these policies are going to be the ones suffering the most in this race to bottom. Well, funny if it weren’t so sad.
VJP- Pretax may be an awkward term form the employer side, but if you think of the employer contribution as part of the employee’s compensation, that is what it is, a part of his pay that he pays neither income nor payroll tax on, thus pretax.
Just for the ease of use, if an employee’s health insurance costs $500 a month, and the employee has $100 deducted from his pay and the other $400 is paid by the employee, then if he chooses to buy his insurance from another source, he has $100 less FICA with which to buy it. The $400 is just gone.
If instead the employer was putting that $400 into a healthcare savings account, for his employee, along with q $100 payroll deduction under the same tax rules, but the employee could use that fund to buy the employers group plan or other insurance, elsewhere, then other groups could compete on an equal footing. The cost to the employer is the same, the tax impact on both is the same, but the employee could purchase insurance that cost him more or up to $100 less, as he chose, from his church or some other group.
Right now, because under the current tax situation, those other groups cannot compete and do not exist. But in life insurance, for example, there are competing plans. The Knight of Columbus, for example, sells life, disability and other insurance plans other than health.
So, we have competition in the life insurance field, but not in healthcare.
Thanks, Vivian, I always get those names confused.
Anyway, I was not implying that people on MediCARE don’t buy supplemental insurance. I was only giving an example of how the existence of a government program gives incentives to companies not to continue a similar benefit.
“[Employees] already can choose to participate in an employer-sponsored plan or not. If they don’t, they get a tax deduction for it.”
I’m not familiar with this deduction. I have seen it for the self-employed, but “you cannot deduct any insurance costs for any months you were eligible to participate in a group health insurance plan through your or your spouse’s employer.”
I was aware that Bush had proposed such a deduction, but did not know it had passed. I was certainly not aware that one could take such a deduction if one were eligible for an employer-sponsored plan. That must then invalidate the bit about the self-employed in the above paragraph — that they cannot take the deduction for those periods in which they could have had employer-sponsored health insurance.
“pieces of paper are more important than human beings. If human beings stand in the way of pieces of paper, we will discard them.”
You’ve completely lost me, MB. What pieces of paper are you talking about?
Vivian, I think I’ve got a comment stuck in the spam filter, and “criteria” is plural.
Thanks! That was FAST!
Health insurance is deductible as a medical expense, Mouse. It’s only an above-the-line deduction for those deemed self-employed.
Prior to the implementation of Medicare in 1965, did companies offer health insurance to retired employees? I honestly don’t know.
Don – we do have competition in healthcare, not just as robust. (Your example doesn’t work, though, because health savings accounts don’t work that way. Health savings accounts are for paying medical expenses, not health insurance.) But that doesn’t get to my question – why should health insurance premiums be pre-tax? And why not life insurance?
As for what plan I would endorse, rlewis – I think the only answer to the health care problem in this country is a single-payer system. But I’m also a realist – that ain’t happening.