Recently a segment of the health care debate asks if employer provided health insurance benefits should be taxed as normal income. My response: ya’ darn tootin’, and there are two good reasons for it.
1. Untaxed benefits which are not provided to all is inherently unfair. Some get it some don’t. Those that don’t, have to pay for health insurance with out-of-pocket post-tax dollars. Money set aside in an HSA can’t be spent on insurance premiums. You won’t be able to deduct it from your income tax until the your medical expenses go beyond 7.5% of your AGI. And for this you’re required to itemize your deductions. There’s a good chance that if your employer is not providing those benefits to you, your income is at a level where you’re better off taking the standard deduction than itemizing your deductions.
2. Having these benefits show up as income on your 1040 will give you a clue as to just how expensive for-profit health insurance is. If you receive health insurance benefits from your employer, you are not an empowered, smart consumer, searching for the best plan for the least cost. At best you get to choose between a handful of plans provided by an insurer who was chosen by your employer. So there are no benefits of the free market. Kinda like getting a ham instead of a check for a Christmas bonus.
Ok, ok, I realize there would be political holy hell to pay for taxing these benefits. Tax increases are never popular. And raising taxes during a recession doesn’t make economic sense.
I’ll come clean here. My point is that the difficulty with fixing our health care system is not how to provide affordable health care for all. If we started with a clean sheet of paper, it’d be easy. The problem is cleaning up the mess of a system we’ve created.