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Taxation of health benefits

The Presidential Panel on Federal Tax Reform heard testimony from two economists that “federal tax subsidies to employers and employees for health insurance, flexible spending accounts and new health savings accounts do not promote the expansion of basic health coverage and increase the number of uninsured residents.” (source California HealthLine)
The Panel, chaired by ret. US Sen John Breaux (LA) is working to assess the impact of the Federal tax deduction for health care benefits, which amounts to a $188 billion subsidy today and will reach $250 billion “in several years.”
The reasoning behind the testimony and hearings lies in the apparent disconnect between the subsidy and it’s impact on the uninsured. Simply put, higher income individuals benefit from the subsidy, while lower-income people are more often uninsured as their employers do not offer the benefit, they are marginally employed, or cannot afford their employer-sponsored coverage.
To address this disconnect, one of the economists testifying recommended “limited subsidies for health insurance in combination with refundable tax credits to help low-income and uninsured residents purchase coverage.”
Why is this important to you?
The President has promised to halve the Federal deficit over the next four years, and huge subsidies for health insurance are likely to be a leading target. The perception in Washington is that the subsidy works to minimize individuals’ concern about and focus on managing their health care; think “ownership society”.
If Bush is truly committed to deficit reduction and the ownership society, health insurance tax benefits are a likely target.

Joe Paduda is the principal of Health Strategy Associates



A national consulting firm specializing in managed care for workers’ compensation, group health and auto, and health care cost containment. We serve insurers, employers and health care providers.



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