A current item on the internet is the ’sudden’ discovery in the new federal health care legislation that employer funds for health care premiums are going to be included in employee ‘total’ pay and thus subject to taxation or tax bracket creep.   Let’s do some thinking about this.

First, does anyone know of any employer who has not represented the company provided insurance as an overall employee salary/wage.  It is a part of the cost of an employee to the business.  That’s reality.  I have always recognized that and been grateful for what it was.  I also have many times calculated the average payout rate for a group of employees and found it to be nearly a factor of 10 more than what my contribution (on the pay stub) may have been.  Maybe if that money was given directly to me on the assumption I would have found my own individual insurance, I could have gotten it a bit cheaper, but unlikely.  That’s what grouping is all about, generally selected by the employer when it exists.

Second, shortly after World War II, business was granted tax incentives to provide health plans.  This was a time of high inflation, excess capacity, and excess returning military people.  The incentive spurred job creation.  Ie, reducing taxes actually stimulates more business and jobs.  It works.  Prime example is the Irish economy in the last decade of the 20th century.  Regardless, the business tax shelter continued until whatever is now about to happen.

Third, there are small businesses which have never provided health plans because they 1) were not big enough to have sufficient profit margin and mass generated funds to live and support a plan, and 2) have too small a group to gain any economic leverage in the insurance market.  Thus, there is no benefit margin to tax, and no hope for recognition of excess ‘hidden’ payments to the employee.  If the intent is successful, the ‘extra’ tax will be a wealth redistribution for health care to the poor or perhaps the small business employees.  This remains to be seen.

Yes, tax brackets will now change, except for special unionized groups to 2018.  But, suppose the ‘benefit’ amount, say, on the order of $26,000 per year is added to the employee pay and actually given out on the stipulation that it be used to buy personal insurance.  Now the individual has to take command and understand how that money is spent.  If they are in good health, they might be able to find catastrophic type coverage for $17,000 per year, leaving a net $9000 (which would be taxed) to play with.  The chronically ill or those with risky behavior (smoking, bungee jumping) pay up to the $26,000.  Now we have consumer driven health care (like buying a TV) and a population which examines their life choices with their own pocketbook.  If they choose to not have health care, tough, they pay as they go at standard published maximum risk rates.  My barber has elected the latter for 40 years very successfully, saving a portion of income with interest growth.  Would you properly use the allocation?  Would Joe Six-Bagle do so?

If the current health bill were tweaked to have the health benefit considered as a pre-tax deduction, then the cost incentive is removed from the business and shifted to the employee.  The unintended consequences are that without business tax avoidance incentive, the health allocation will go down, gradually moving us back to self reliance anyway.

Bottom line?  We have drifted health care through an ever increasing pay/cost/benefit economic maze to a behemoth that may be impossible to fix without a major upheaval in all sectors, and I really mean ALL.

Finally, it is my concern that the top level controllers are about the business of rationing health care.  Follow the thread at http://kandg.org/WPBlogger/?p=224