The Individual Tax Spin
By Benjamin Pacini • Monday, August 24, 2009 5:16 pm
With the health care reform crisis, there is much talk about the tax-advantage that individuals receive if they purchase employer-provided health insurance. What people aren’t discussing is that calling it a tax-advantage is pure spin.
If you go to your employer, and decide to buy health insurance, you do so with pre-tax dollars. This means that you can buy more health insurance because it is cheaper (note the distortion in the market). When you buy personal insurance, however, you must first pay taxes; in short, you have less money to spend on health insurance. In other words, if you choose to buy your own health insurance, you pay taxes. To state it plainly, the government taxes your health benefits when you buy your own plan.
This has negative consequences. Not only does it distort the market when people buy employer-provided health insurance (people buy more than they would if they were getting all of the money themselves, raising premiums), it also separates the buyer and the seller with another layer. That is, when people who won’t use insurance (employers) are buying it for those that will (employees) the free-market isn’t at work.
Additionally, when people buy employer-provided insurance, and they lose their job, they also lose their insurance. With all the hubbub about insurance portability in Washington, it’s a surprise that the congressional plan isn’t favoring more individual insurance. When people say that there is a tax advantage to buying employer-provided insurance, they are being too polite; it is not a tax-credit on the one, it is a tax on the other.
Additionally, while President Obama is attacking the straw-man of ‘death panels,’ conservatives, economists, and other concerned citizens with legitimate concerns are being pushed to the side. Such include Martin Feldstein, Michael O. Leavitt, and Shawn Tulley (all of whom suggest cutting the tax on health benefits as a way to reduce long-term costs).
While President Obama claims that the republicans are attempting to ‘block health care reform,’ they are actually desperate for reform; they just want it to be the right kind.
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There is a way to pay for health care in pre-tax dollars currently, but it\'s not a good one. You have to estimate how much money you\'ll spend for the year in health expenses, then you pay it right away with pre-tax dollars. During the year you have to save receipts from the premiums and medications you buy, and send them in. If you overestimate how much money you\'ll use during the year, you\'re out of luck--you can\'t get that money back! Not the greatest plan... plus it\'s buried, not too many people know about it.
>> Sabrina Huyett August 24, 2009 7:19 pm
First off, the person who wrote the php or whatever it is for this site should look at the html and/or sql escape code - that's why there are all of these backslashes. Secondly, I think you bring up a good point about individual insurance - it does seem smarter to have individual plans than employer plans. Individuals have more choice, which should drive competition and help everyone. And, as you say, you don't lose your insurance when you lose your job. But where can you find an individual insurance plan that's as good as an employer plan? Lastly, as one who isn't an economist or a political junky, I had to read the post a couple of times before I understood some of what you were saying. What's a distortion in the market, and why is it necessarily a bad thing? It's a good post, I just think you could be clearer in what you're trying to say.
>> Matt August 25, 2009 10:54 pm
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