NCPA - National Center for Policy Analysis

Patient Privacy May Depend On Tax Reform

April 14, 1999

So long as most health insurance is provided through employer- sponsored health plans, the confidentiality of patients' medical records and personal health information will be in jeopardy, say Heritage Foundation analysts.

In the United States, employers provide health insurance as an employee benefit because the premiums they pay are tax-deductible and employees' aren't taxed on the value of the benefit -- whereas individuals who aren't self-employed who purchase insurance for themselves and their families can't deduct the premium payments from their income taxes.

As long as employers pay the bills and select insurance carriers, they will want access to information about their employees health -- both to manage costs and prevent fraud.

  • A survey of Fortune 500 companies by David Linowes of the University of Illinois at Urbana-Champaign found that of the 84 companies that responded, 35 percent reported that they used personal medical information in making personnel decisions.
  • The survey also found that while 93 percent of corporations received written permission from workers or prospective hires when collecting data, only 32 percent of the companies informed workers about the type of information they were seeking.
  • According to Dale Emerson of the Illinois Department of Insurance, employees often authorize access to personal health records when applying for a job or filing a claim without even knowing that they are doing it.
  • Employers examine claims records to verify treatment, track health costs, or request information on prospective employees to assess their level of risk.

Tax reforms that would give workers who purchase their own health care the same tax benefits as employers would help protect patients' privacy, say analysts. Such reforms might include income tax credits for employees who purchase their own health plans (perhaps with a contribution from their employer); permiting employees to make more extensive use of flexible spending accounts (Section 125 plans), such as rolling over unused balances from year to year; and steps to widen the use of medical savings accounts.

Source: Stuart M. Butler, Ph.D., and Carrie J. Gavora, "How Tax Reforms Would Help Protect Patient Confidentiality," Backgrounder No. 1242, January 19, 1999, Heritage Foundation, 214 Massachusetts Avenue, N.E., Washington, D.C. 20002, (202) 546- 4400.


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