Tough Cuts: Taxing Health Care, Slimming Medicare

Friday, November 19, 2010

The co-chairs of the National Commission on Fiscal Responsibility have come up with a list of proposals of possible cuts in order to help offset the looming national deficit. Balancing the budget by 2015 will require finding ways to save $200 billion. So far, no decisions have been made on what programs should be cut, and lawmakers have to agree on where to begin.

So, we're doing the job for them - at least hypothetically. All this week, we're picking one program a day to cut and looking at what the ripple effect would be of doing so.

Today we make cuts in health care, including reducing the tax exemption for employer-provided health insurance and reducing costs from Medicare. Trudy Lieberman, health care blogger for the Columbia Journalism Review, explains how making these cuts would impact millions of Americans. 


Trudy Lieberman

Produced by:

Kateri A. Jochum

Comments [3]

William from Boston, MA

To expand on what Rick and Peg are saying, employer-provided health care is a form of income for the employee. The health care has a dollar value, and it's being given to me by my employer. Hence, income.

It's been deemed to be untaxable by Congress, so employers are able to give their employees "more income" without having to pay equivalently more taxes by giving them more expensive health care plans.

Unfortunately, if I, as the employee, don't *want* that fancy expensive health care plan and would be just fine with major medical coverage, I'm out of luck. I'm stuck with what my employer has chosen. If *I* want to choose how that money is spent, I can lobby my bosses and try to convince my fellow employees, but that's it.

If health care plans were taxed the same as the rest of my pay, my employer has no incentive to buy me health care rather than just give me the equivalent amount of money. Then *I* get to choose how that money is spent, rather than my employer choosing for me.

This of course assumes that when an employer eliminates their health care benefit, the costs of the program are given to the employees as regular compensation, instead of given to shareholders, used to increase executive compensation, or used as investment capital to expand the business.

Given the current rate of unemployment, many employees might just put up with just plain losing some of their compensation and grumble privately, but those with a choice would consider quitting if such a move were made. Smart companies that have very good employees and want to keep those employees would do well to give the erstwhile health care costs as monetary compensation to their employees instead.

PS - The employer-based health insurance system is one of many things very, very wrong with the American health care system. The incentive are all wrong.

Nov. 19 2010 10:01 AM
Rick Evans from Taxachusetts

John, when Peg says she has to pay taxes on her health insurance I suspect she means she pays for her insurance with AFTER TAX dollars. Employer provided health insurance is a form of tax free compensation.

Nov. 19 2010 09:44 AM

I am self employed and I have to pay taxes on my health insurance. Either Takeaway my taxes or make everyone else pay.

Nov. 19 2010 07:36 AM

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