Obamacare repeal – GOP looks at making employer health benefits into taxable income

When you dig into the details of GOP legislative plans in the Congress to repeal the Obama health law and replace that system with something different, it doesn’t take long to find items deep in the fine print that could certainly ignite some controversy over how best to deal with health insurance coverage in the future.

For example, if you get health care coverage through your job – that is the most common coverage for American workers – should those employer provided health benefits be taxed by Uncle Sam?

Currently, the money that a business spends to provide an individual employee with health benefits is not treated as income for that worker – so your benefits are not taxed – but some Republican plans would change that in the future.

The “Better Way” plan from House Speaker Paul Ryan argues for such a change, making the case that the tax exclusion for employer provided health benefits causes an economic reaction which forces up the cost of health insurance premiums (it’s on page 15 of that link).

A rather large amount of money is on the table on this issue; a recent report estimated that Uncle Sam is missing out on $266 billion in tax revenues in 2016, and would total $3.6 trillion over the next decade.

“This benefit is so massive that, in terms of federal support, it would be the third largest health expenditure, after Medicare and Medicaid,” the Speaker’s ‘Better Way’ plan states.

While the Speaker’s approach on health care reform has not made it into legislative language as yet, one GOP plan issued in the first week of the new Congress would end that tax exclusion for employer provided health care benefits.

The bill is from the the Republican Study Committee in the House; the group’s plan would take on the current system by settting up a standard deduction for health insurance (SDHI) of $7,500 for individuals, or $20,500 for a family.

The idea is simple – the deduction shields more of your income from taxes, lowering your net tax liability, and allowing you to have extra money to pay for health insurance coverage, either through a plan you buy directly, or health coverage through your job.

To offset the cost of that new tax benefit, the bill takes aim at the tax exclusion for employer health benefits, and more.

“The SDHI is intended to be revenue-neutral,” the plan’s explanation states – which means it will not bring in more or less in terms of tax revenue – “and is funded through the elimination of the tax exclusion for employer-paid health insurance and the self-employed health deduction.”




The tricky nature of this one issue is evident in how the RSC released details about its health plan, as the group issued a separate description of this legislative provision – the only provision in the bill to receive such treatment.

The issue of making employer provided health benefits into taxable income has been around for a long time in the health care debate.

The so-called “Cadillac Tax” on high cost health insurance benefits runs along the same fault line, as supporters of that tax argue it’s a way to encourage workers and companies to choose less expensive health care coverage options.

But the difference is clear – the Cadillac Tax would subject the higher cost plans to a 40 percent surcharge starting in 2020, while these GOP plans would turn all of those employer provided health care benefits into taxable income.

The big question for the GOP would then be, how much of that extra taxable income should then be offset by other tax benefits.

It’s one of the many details that Republicans may deal with as they move plans forward on health care reform in the Congress – and it is a reminder that the repeal of the Obama health law is about much more than just repeal.

 

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