Reforming the U.S. Health Care System

Policy Backgrounders | Health

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

V. Preserving Employer Options, But Rewarding Good Choices

"People who purchase their own insurance would receive just as much tax relief as people who obtain insurance through an employer."

A. Giving All Employers The Option Of Keeping Their Employees In The Current Tax Regime

  1. Because many employers and their employees have made plans and organized their financial affairs around the current tax law, an abrupt change to the new system could be unfair.
  2. Accordingly, employers will be given the option to keep their employees in the current tax exclusion system.
  3. However, most employers will have an economic incentive to switch to the tax credit system because that will allow them to cut waste and inefficiency out of their health care plans without losing tax benefits.

"Employees could choose an alternative to their employer's plan; but employers would not be required to reimburse them."

B. Rewarding Employers Who Help Their Low-Income Employees

  1. Because the current tax exclusion system rewards those in the highest tax bracket the most, the system favors high-income employees.
  2. But because the tax credit system treats all taxpayers equally, switching to it will help almost all low- and moderate-income employees.
  3. Under the new plan, employers who help their low-income employees by switching to a tax credit regime, even though their higher-income employees may pay higher taxes as a result, will be rewarded: the new tax regime will lower the cost of their compensation packages and make it easier for them to compete for employees in the labor market.

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