When people argue over health reform, there are two schools of thought on how to equalize the tax-treatment for the purchase of health insurance:
- Have health insurance plans be tax-free across the board
- Have employer-sponsored health insurance be taxed
Since World War II, employees benefit from tax-free health care benefits. Those who purchase health care on their own in the individual market pay for plans with after-tax dollars.
The Obama administration and even some health policy wonks on the right side of the political spectrum argue for the latter. For years, employees have benefited (with higher-income employees benefiting even more) from large implicit subsidies on their tax-free health benefits. Putting this in perspective, the government has lost $270 billion of revenue in 2010 alone – almost equivalent to the $280 billion the feds poured into Medicaid the same year.
Because employees with employer-sponsored health benefits are in large part shielded from the true cost of care, it’s only natural that this induces medical usage. So Obamacare and other ‘Repeal and Replace’ proposals plan to cut down on wasteful health care spending by either enforcing a 40 percent excise tax on generous fringe benefits or putting a cap on tax-exclusions for health benefits offered by businesses.
Many see both of these proposals as similar, but there are in fact some key differences worth noting. Forbes Contributor Robert Book explains the nuances and makes the case that lower-income employees will be worse off if subject to Obamacare’s ‘Caddy Tax’ in 2018.
