Health Care Plans

[Spiegepj]

I have to answer this question for my Benefits class. I am having trouble, and was wondering if there were any HR junkies out there that could help me.

What would the consequences be if the U.S. Congress changed its current tax treatment of health care plans by making all employer-sponsored benefits taxable to the employee but allowing the employee to deduct all his non-reimbursed health care expenses?

Anything will be helpful. Thanks

[RugbyD]

I have to answer this question for my Benefits class. I am having trouble, and was wondering if there were any HR junkies out there that could help me.

What would the consequences be if the U.S. Congress changed its current tax treatment of health care plans by making all employer-sponsored benefits taxable to the employee but allowing the employee to deduct all his non-reimbursed health care expenses?

Anything will be helpful. Thanks

i dont know anything about HR, but it sounds like the value of the benefits would be added to the employee's taxable income but that those additional taxes created by a higher AGI could be offset by any non-covered expenses paid. This would be a horrible deal for healthy people, but would also probably incentivize people to reduce their benefits coverage and take the difference in higher pay so that they have more out-of-pocket expenses to use as tax deductions. This would probably be done by raising the deductible first, then maybe make changes to other coverage. I may be thinking about this wrong tho.

[Madison]

This would be a horrible deal for healthy people

That's how I read it as well. And following that logic, some people would adopt the "I'm being taxed on it, so I might as well use it" mentality, clogging up the healthcare industry, and resulting in the care received by everyone not being as good as it could be because the hospitals/doctors are so overbooked.

[baizboll]

That would really screw the taxpayer. The employer usually pays about 80% of the premiums. So for a single person, add about $5000-7000 to his income. Depending on the health plan, you can either have a fixed co-pay or a deductible or pay a percentage of the charge each time you have an expense. So if you have a $10-30 co-pay every time you visit the doctor or get an x-ray or a lab test, that is an out of pocket expense. Do you think most people are going to have out of pocket expenses equaling the $5000-7000? Not likely. Good for Obama's treasury, bad for the average citizen.

There are many other employee benefits other than health insurance that would fall under the proposal of adding them back to income. The standard at a company I am familiar with is 32% of payroll is the cost of benefits. Imagine if your reportable income went up 32%, but none of that went into your pocket because the company was spending it to give you benefits. That's scary.