NCPA

Excerpted From: State Briefing Book on Health Care

September 23, 1994
W5

Tax Treatment of Those Who Purchase Their Own Insurance

The kind of health insurance most of us have is determined by what the federal tax law subsidizes. This has led to an employer-based system under which people lose their health insurance when they switch jobs. Moreover, not everyone is treated equally. General Motors employees have one of the most lavish health insurance plans in the world - with Uncle Sam footing up to half of the cost. At the same time, the self-employed, the unemployed and employees of small companies that do not provide health insurance are discriminated against. They must pay taxes first and buy health insurance with what's left over. As Figure I shows, this makes their effective price of health insurance twice as high as the price for people who have employer-provided insurance. Small wonder that almost 90 percent of the population under 65 years of age with health insurance is insured through an employer.

"Employer-provided health insurance is an artificial result of federal tax law."

"The effective cost of health insurance is twice as high for people who buy their own policy."

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