Approximately 178 million Americans, more than half the population, currently enjoy health benefits provided by their employer. Those Americans are not taxed on the value of that coverage and neither are their employers. In Casey Given’s March 27 article, “Republicans should take on the ‘original sin’ of health insurance: Employer-based coverage,” he claims that healthcare costs are rising because workers don’t pay taxes on their health insurance.
His argument that the employer-sponsored healthcare system is driving up the cost of care is not only absurd, but completely refuted by the facts. Unfortunately, Given is not alone in his thinking.
Congressional Democrats bought into this thinking when they included in the Affordable Care Act a 40 percent “Cadillac” tax on employers that provide “expensive” health coverage. Then Republican health reform plans called for replacing the “Cadillac” tax with a tax on employees to the extent the value of their employer‐provided health coverage exceeds a specific threshold — in other words, capping the income tax exclusion for employer-provided health coverage. Both of these taxes would threaten the successful, innovative employer-sponsored healthcare system, hit the wallets of hard-working Americans, and do nothing to address the root cause of rising healthcare costs.
Let’s tackle the biggest, most popular myths about taxing employer-sponsored health care.
Myth 1: Employers will give employees a raise to make up for reductions in their health benefits.
Truth: Nobody is getting a dollar-for-dollar raise. If employers compensated employees with salary increases for some of the reduced health benefits, the employees would be taxed on that extra money and so would the employers, through payroll taxes. Everyone ends up with less money.
Myth 2: Employer plans are overly-generous, capping the exclusion will only affect the most generous plans.
Truth: Every plan will eventually exceed the threshold and be taxed. One study found that up to 63 percent of employer-sponsored plans would be subject to the cap in 2020, and up to 81 percent of plans would be hit in 2024.
Myth 3: Capping the exclusion will lead to more efficient benefits. It will not harm working families.
Truth: Taxing benefits at any level will cause employers to attempt to reduce plan values to get below that level. There are only two ways to reduce the value – directly shift costs to employees or cut benefits.
Myth 4: Capping the exclusion will not harm the employer‐sponsored system, but will enable individuals to get health insurance even if they don’t have a job.
Truth: Creating a tax on benefits that increases on auto‐pilot, while at the same time establishing a system of tax subsidies available for those without job‐based coverage, will eventually lead to employers no longer offering health benefits.
Myth 5: A cap will rein in overly-generous benefits, boost innovation to help control healthcare costs, and force lazy employers to start working harder to control healthcare costs.
Truth: On average, employers pay as much as 80 percent of plan beneficiaries’ health insurance costs. Since employers have more motivation than anyone to control costs, the employer system is the most innovative. You can thank employers for inventing accountable care organizations, chronic disease management, and other cost‐control and quality‐improvement strategies that have taken insurance companies and the government decades to catch up to.
So why would anyone want to mess with a system that has been innovating and providing healthcare benefits to millions of working Americans for more than 70 years? Is there a movement for employees to trade in their employer coverage for individual plans? The only movement will be the protests of working families faced with $200 to $300 billion dollars of new taxes.
James Gelfand is the senior vice president of health policy at The ERISA Industry Committee.
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