Question
Will the candidate's plan protect employer-based health coverage?
The Issue
Employer-based health insurance is the cornerstone of the American health care system. Six out of every 10 Americans—nearly 180 million people—currently receive health insurance through their job or the job of a loved one, and their employers pick up, on average, about three-quarters of the tab.5 While Americans with employer-based coverage are concerned about rising health care costs, a majority report that they are pleased with their coverage.6
Given the popularity and prevalence of employer-based coverage, health reforms that threaten this foundation take the country in the wrong direction. The workplace creates a natural way to group people together, which makes administering health insurance easier and makes price negotiations with large insurance companies fairer and more effective. There are two provisions in the current tax system that give employers an incentive to offer coverage to employees and that help employees pay for this coverage. First, employers can deduct the value of what they pay toward employees’ premiums from their business taxes. Second, the dollar value of health benefits paid for by employers is not counted as taxable income for employees, which lowers the amount of taxes that employees pay.
Although improvements to the current health care system are necessary, health reform plans must respect both the benefits of employer-based health insurance and the wants and needs of the 180 million Americans who rely on it. However, some policymakers want to eliminate the second tax provision discussed above, meaning that the value of health benefits—often several thousand dollars (especially for family health coverage)—would be added to employees’ taxable income. Employees would then have to pay more taxes. Benefits expert Robert Laszewski predicts that if this were done, “most companies would stop paying for health care in three to four years.”7 This would force Americans into the individual health insurance market, where, unlike in the employer market, insurers can charge higher prices or deny policies altogether based on an applicant’s age or health. Such a system could leave millions of Americans, many of whom are currently insured through their employers, with nowhere to turn for coverage.
The Positions
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Senator McCain: Senator McCain’s health plan eliminates the tax exclusion for health insurance premiums. This means that employers’ contributions to health insurance premiums will be added to employees’ taxable income. He replaces this exclusion with tax credits of $2,500 for an individual or $5,000 for a family. People can use these tax credits to offset the higher income taxes they would have to pay, or they can use the credit to help them buy health insurance on their own. Many younger and healthier employees will leave their employer’s plan and use their tax credit to shop for coverage in the individual market. Over time, employers will be left to cover an older and sicker—and thus, costlier—population and will be increasingly likely to drop coverage altogether. |
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Senator Obama: Senator Obama’s health care plan preserves the tax advantages that employers and employees receive for purchasing health insurance. His plan also creates a new safety net (called reinsurance) to protect everyone—employers, insurers, and working Americans—from catastrophically high health care costs. In addition, Senator Obama’s health care plan requires employers, with the exception of some small businesses, to either offer a health plan to their workers or to contribute to a fund to help cover them through his National Health Insurance Exchange (his system of health insurance plans that would be required to offer coverage to all applicants at a reasonable price). His plan also provides subsidies on a sliding scale to assist workers who need extra help paying for health insurance. |
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Footnotes
5 Carmen DeNavas-Walt, Bernadette Proctor, and Jessica Smith, Income, Poverty, and Health Insurance Coverage in the United States: 2006 (Washington: U.S. Census Bureau, August 2007); and Kaiser Family Foundation and Health Research and Educational Trust, Employee Health Benefits: 2007 Annual Survey (Washington: Kaiser Family Foundation and Health Research and Educational Trust, September 2007). The Kaiser-HRET 2007 survey found that employers paid an average of 84 percent of the premium for single coverage and 72 percent of the premium for family coverage in 2007.
6 Ruth Helman and Paul Fronstin, "2007 Health Confidence Survey: Rising Health Care Costs Are Changing the Ways Americans Use the Health Care System," EBRI Notes 28, no. 11 (November 2007).
7 Shawn Tully, "Why McCain Has the Best Health-Care Plan," Fortune Magazine (March 11, 2008). |
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