NCPA - National Center for Policy Analysis


January 5, 2007

Workers in California would be allowed to pay their health premiums with pre-tax dollars under a proposal Gov. Arnold Schwarzenegger released yesterday.

The idea, part of a broader health reform plan the governor plans to unveil Monday, is designed to lure more employees to buy insurance by making it more affordable.  The governor wants to make health insurance accessible to the estimated 6.5 million Californians who lack coverage for all or part of the year.

  • Schwarzenegger said the proposal would save employees as much as 40 percent on their health insurance costs because money they spend on premiums wouldn't be taxed.
  • Employers would also save, paying less in federal payroll taxes, an aide to the governor said.

Schwarzenegger also proposed requiring health insurers to offer incentives for healthy living.  For example, people who sign up for gym memberships or weight loss programs might have their insurance rates lowered.

The proposal to force employers to offer so-called Section 125 plans -- a reference to an Internal Revenue Service code -- could carry a big price tag at a time when the state faces a $5.5 billion budget deficit.  The governor said the accounts could save residents $900 million annually in state income taxes, although he expects that the loss to state coffers will be less than that because the state often ends up paying for health care for the uninsured.  The governor has not said how he would pay for the program.

Source: Mike Zapler, "Governor plans tax break for health insurance," Sacramento Bureau, January 5, 2007.

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