Friday, May 8, 2009

"Cadillac Insurance" Tax

During the presidential campaign, one of the legs on which McCain's health plan platform stood was an elimination of tax breaks for employer sponsored health benefits in exchange for creating a tax credit for individuals and families who then chose to purchase insurance on the Free Market instead. The plan was that encouraging people to obtain insurance on their own instead of through their employer would create a more competitive insurance market, though McCain acknowledged this plan was effectively a tax on the wealthy.

What are those tax breaks? Briefly, the money an employer spends that is received in health benefits are not taxed as income. Further, an employer is able to contribute to those benefits with pre-tax dollars. McCain wanted to say bye-bye to that. What did now-President Obama say? No way.

Fast forward to May 2009. The plan to remove the tax breaks is still on the table. Somewhere. Some members of Congress (read: Baucus) and unnamed members of BO's administration are supportive of elimination of the employer benefit tax breaks. What will the President say now?

The obvious move for employers if this were to occur, which was part of the McCain health plan ideology, is that without the breaks, employers will cease to offer benefits, or offer less attractive (expensive) packages. This affects many many Americans as approximately 2/3 of those under 65 who are insured receive benefits from their employers, according to NYT. Of course, NYT does not differentiate on how good those benefits those are, but I suppose that doesn't matter when (1) something changes and (2) suddenly you're paying more for the same thing. No one likes that, right?

There is no talk in the NYT article about "balancing the platform," as McCain was to do with his tax credit. Why? Because the balance would be people using the public option, and that's an article of a different color, for both the NYT and this blogger. More to come........

3 comments:

Dan said...

wouldn't the obvious effect be that:
1. businesses would stop offering the benefit altogether, instead giving that money as additional salary (or at least some of it since it would now be taxed).
2. the employee has a slightly higher income, but no health insurance, so he goes out and buys his own health insurance, using his additional salary and newly created tax breaks to pay for it.

Dan said...

i guess that assumes that the other part (tax credit) comes through, and is big enough to make up the difference.

the bigger problem I see is that if you're poor, you're probably not paying much in taxes so a tax credit isn't going to help you unless its refundable.

vee said...

i think that you're right Dan. and unfortunately the tax credit likely wouldn't be big enough. that was a huge criticism of mccain's plan.

i'm sure we can use the tax code in a much better way than this. now on to figuring out how...