Sunday, May 10, 2009

Bizarre Logic from Congress on Health Care Reform

When business pays for employee health insurance on a tax exempt basis, the system is distorted according to Senator Max Baucus, Chair of the Senate Finance Committee. Guess what might get tax free treatment for employers? Health club memberships for employees.

“We would like Congress to change the law so it would not be taxable income if an employer provides a benefit to help employees stay healthy.”

Why isn't that distorting? The AP reported:

Obama wants to build on the current system in which employers, government and individuals share responsibility for health care.

Who will pick up more of the tab under Obama's health care reform? Will it be businesses, the government or individuals? Max says the latter two.

Baucus favors requiring individuals to get health insurance, which will help. But he also supports subsidies for people who can't afford coverage - a cost to the government.

To help close the money gap, Baucus is open to some limits on the current tax-free treatment of employer-provided health insurance.

Health benefits are considered part of an employee's compensation, but are not taxed. If all health insurance were taxed like regular income, the government could raise an additional $250 billion a year.

What if the individual keeps the tax deduction? Max seems to be making room for this.

Baucus says doing away with the tax break altogether would cause harm, but some limitations might curb waste in the system. Obama's aides say he's still opposed, but willing to consider any serious proposals from Congress.

Obama's opposition to taxing employer-provided health insurance isn't the only campaign position he might have to jettison to pay for health care.

He once criticized his chief Democratic presidential rival, Hillary Rodham Clinton, for proposing that everyone in the U.S. be required to have medical insurance. Yet such a mandate probably will be in what Congress puts together because requiring individuals to pay would lower federal costs.

Business clearly wants to shed that pesky health insurance benefit. Individuals are square in the sights. If employer provided health insurance is taxed and individuals retain the tax deduction, how long before the great shedding occurs?

Health insurance won't be the first dump to workers. Employers ditched defined benefit pension plans over two decades. In the recent economic crisis, many stopped their 401(k) matches. Social Security may scale back its commitment to workers. A report is due this week from SS Trustees.

Obama wants to restart business investment. It was recently known as greed and leverage. Obama wants corporate profits back on track. Dumping health insurance onto the employee is a big time win, sure to enrich executives through incentive compensation arrangements.

Lower taxes may be the Chamber's next win. President Obama said he'd like to see lower corporate tax rates over time. What tax breaks will he give to businesses to encourage investment?

Businesses scrimp, while the government kow tows to corporate sponsors. Health care reform math says the individual pays and pays and pays.

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