Treating Health Insurance Fairly
March 8, 2000
The federal government "spends" about $125 billion in tax subsidies each year, encouraging people to buy private health insurance. Yet the number of people without insurance has reached 44 million and continues to grow. Why? Because the way in which these subsidies are targeted is arbitrary and unfair, and is actually causing more people to become uninsured.
- Under the current system, employer payments for health insurance are excluded from an employee's taxable income.
- Unlike wages, this employee benefit avoids payroll taxes and federal, state and local income taxes -- which means government is effectively paying half the cost of insurance for many middle-income families.
- By contrast, individuals who must purchase their own insurance with after-tax dollars must earn twice as many dollars to purchase the same coverage.
Ninety percent of people who have insurance, get it through an employer. Millions of those who don't figure that if a family member becomes seriously ill, they can always find work from an employer who will pay the medical bills. In this way, bad government policy actually encourages people to be uninsured.
The current system is also self-defeating in other ways. For example, families in the top fifth of the income distribution get six times as much help from the federal government as the bottom fifth. Small wonder that the lower the family income, the more likely that a family is to be uninsured.
Tax relief for health insurance should be the same, regardless of who writes the check. Individually purchased insurance should qualify for just as much tax subsidy as employer-purchased insurance. This would level the playing field between those who get coverage as a benefit of employment, and those who purchase insurance on their own.
Source: John C. Goodman (president, National Center for Policy Analysis), "Level the Playing Field for U.S. Health Insurance," Florida Sun-Sentinel, March 6, 2000.
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