NCPA - National Center for Policy Analysis


September 7, 2006

Most employees who leave their health-insurance plans at work probably don't realize they are falling into an expensive tax trap, says Richard E. Ralston, executive director of Americans for Free Choice in Medicine.


  • Any portion of their health-care cost now funded by their employers is a tax-free benefit.
  • Any insurance they buy to replace it must come from after-tax income. 
  • If they have no insurance, any out-of-pocket expenses they pay must also come from after-tax income.
  • Only if they buy high-deductible insurance in association with a Health Savings Account will they experience tax relief on actual expenses, but the insurance premiums will still be paid from after-tax income.

For 60 years government tax policy has subsidized an expensive system of third-party payment for health care.  As employer-provided health care continues to fall apart, that policy must change, says Ralston.

  • Those who can't afford health insurance surely can't afford to pay taxes on the dollars that they need for insurance or direct health-care expense.
  • If the federal government really wants people to be able to afford insurance it needs to stop taxing it. 
  • It also needs to allow citizens in any state to buy policies from insurers in any other state to free them from the expensive mandated coverage now required by many states.

Source: Richard E. Ralston, "Letter to the Editor: Tax Trap Awaits Those Leaving Employer Plans," Wall Street Journal, September 7, 2006.

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