Reforming the U.S. Health Care System

Policy Backgrounders | Health

No. 149
Monday, April 26, 1999
by John C. Goodman & Merrill Matthews

IV. A Rational Role For Employers

A. Putting Employer-Purchased Insurance And Individually-Purchased Insurance On A Level Playing Field Under The Tax Law

  1. For those who obtain insurance under the tax credit system, amounts spent by the employer on health insurance will be included in the employees' taxable income.
  2. However, employees will receive a tax credit on their personal income tax returns.
  3. This will be the same tax credit available to people who purchase their own insurance.
  4. In this way, people will get the same tax relief for the purchase of private health insurance, regardless of how it is purchased.

B. Allowing The Employer's Role To Be Determined In The Marketplace, Rather Than By Tax Law

  1. Some health reform plans would require employers to provide health insurance; other plans would force employers out of the health insurance business.
  2. This plan allows the market to determine the employer's role: if employers have a comparative advantage in organizing the purchase of insurance for their employees, competition for labor will force them into that role; if employers have no special advantage, they will avoid that role.

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