Tuesday, January 30, 2007

Telling it Like It Is . . . Almost . . .

Key Democrats have already announced the president's plan to use the tax code to encourage more Americans to obtain health insurance is dead on arrival on Capitol Hill.

They complain this is just one more scheme to give tax breaks to people who don't need them while continuing to deny essential health care to the most vulnerable

Give tax breaks to those who don't need them.

They say that with a straight face?

About 175 million Americans receive insurance through their jobs. Under the current system, they don't pay taxes on this benefit, even on the portion of the premium paid by their employers, and they also don't get a deduction for the portion of the premiums they pay out of pocket.

Well kind of.

If they are participating in a Section 125 plan they can get a deduction (actually, a salary reduction which lowers FICA and income taxes paid) for premiums paid.

When an employer looks to hire someone, he calculates the total cost of that employee: salary, employer payroll taxes and benefits, including health insurance premiums. In terms of the true cost to the employer, a dollar paid for insurance for the employee is no different than a dollar paid in wages

Fringe benefits save employers quite a bit of money. They don't pay their share of FICA taxes, FUTA, SUTA or workers comp on monies paid for health insurance premiums.

Looked at another way, it costs the employer $100 to pay $100 toward the cost of health insurance. If that same money were paid out in wages the cost to the employer is around $112 and the net benefit to the employee in take home pay is around $85.

This is never mentioned in the press.

But the real winners would be the uninsured and those who choose insurance policies with lower premiums but higher deductibles. The uninsured would now be able to use the money they would have paid Uncle Sam to put toward purchasing health insurance. For someone in the 30 percent tax bracket, that would be $4,500 they could use to pay for health premiums. The working poor, who pay little or no income tax, would still receive a break on their payroll taxes, though not enough to pay for most current insurance policies.

Policies with lower premiums and higher deductibles.

The working poor.

My experience has been, the lower income people simply go without health insurance, especially if they have to choose a higher deductible to make the plan fit their budget. That is very short-sighted in my opinion, but who listens to me?
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