NCPA - National Center for Policy Analysis


January 12, 2007

Gov. Schwarzenegger calls his new health care plan an "individual mandate," but it's not. Instead of helping Californians to become more responsible for their own health care, it makes more of them wards of the state, says Ronald Bailey, science correspondent at the Reason Foundation.

The main obstacles to individualization in the Governor's plan are the ridiculous federal tax laws that allow employers, but not individuals, to purchase health insurance with pre-tax dollars, explains Bailey.  For example:

  • Rather than paying an employee $1,000 more in wages, of which $400 will be taxed away, companies purchase $1,000 in additional health insurance tax-free.
  • In this way companies funnel more than $140 billion a year in federal tax breaks to their workers.
  • The tax-free status of employer-provided health insurance encourages generous coverage that allows employees to ignore the prices of medical services, which in turn encourages providers to charge more and more.
  • Employees, seeking to take advantage of their coverage, tend to over-utilize the system, which also puts pressure on prices.

But the National Center for Policy Analysis (NCPA) believes there may be loophole in federal law in which health reimbursement accounts (HRAs) -- accounts through which employers can reimburse employees with untaxed dollars for health care expenses, including health insurance premiums -- could be used by companies to buy individual health insurance policies for their employees with pre-tax dollars.

"There is no economic reason that employees can't enroll in health plans that meet their needs and retain them as they travel from job to job," explains NCPA president John Goodman.  "Employers should be able to buy personal and portable insurance for their employees with pre-tax dollars, just as they are able to buy group insurance today."

Source: Ronald Bailey, "Ready for Ahnoldcare?" Reason Magazine, January 12, 2007.

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