Realizing that the devil is (always) in the details, and that there is a big difference between talking about doing something, actually making a recommendation, and that recommendation actually getting into law, this week we asked readers what they thought would be the outcome of such a move.
The most popular – er, consistent – response this week was that there would be less benefits offered by employers, cited by nearly 49% of respondents. As one reader enumerated, “If health insurance becomes a taxable event to the employer, with the already double-digit increases in keeping the plans they have, employers may be forced to either drop or offer reduced coverage to their employees. If the employer offers reduced coverage to the employee, using the coverage the employee has may become too expensive to use and then we see more people showing up in emergency rooms (the most expensive care, who may have been helped previously in a doctor’s office. If the employee is taxed, the money the employee would have used to make co-pays has been paid in taxes, the insurance becomes too expensive to use, and employees again show up in emergency rooms with problems that might have been cared for earlier in a doctor’s office. OR the employee elects to forgo the health insurance altogether, and ends up with no insurance.”
Another noted, “There are few incentives for an employer to want to be in this business as it is. What with employees who always want more, the appeals process that seems to have forgotten that health care is based on contractual elements – if the contract doesn’t cover the benefit, it shouldn’t be open to appeal – and the incredible cost involved, this could well be the straw that breaks the camel’s back.”
“All signs point to less benefits in the future, whether this becomes law or not,” noted one, while another simply noted, “If you tax something, there will be less of it.”
Nearly a quarter ( 24.44% ) of this week’s respondents saw even more dismal prospects – less in the way of benefits, and higher costs for those that were available. “Pretty soon employers are going to say why am I providing benefits and just quit doing it,” noted one. “It will turn into employee pay all.” Another responded, “It would just accelerate what I see as the current trend in that arena….”
Roughly 5% thought it would lead to more expensive benefits. One said, “Employee’s will continue to want to work for an employer who offers good benefits, employers will continue to need good employees; thus, employers will just pay the cost of the tax, and the consumers will be hit with the bill so that the employers can continue to make a profit. Bottom line is that the government would be increasing inflation, and yet no great benefit came to the people.”
No one thought it would result in more benefits, and just about 2% saw the prospect leading to no changes. “This would be another tax on employees, but in the case of health insurance, the benefit is too important to employees,” observed one. “If this legislation is successful and other benefits begin to be taxed, employees who are given the choice may opt out of benefits that are marginally beneficial to them.”
While roughly 4% saw a change in the kinds of benefits offered to be a likely result (largely an increase in plans that rely on employee funding and/or Health Savings Accounts), a robust 16% opted for “other.” This was largely a function of readers opting for multiple responses – but there were some true “others” as well. “Less benefits, and those that are retained will be more expensive,” noted one, “BUT that only applies to the average worker. Those lucky folks earning at the high end will receive more benefits at lower costs.”
“For small business and rank and file, it would be a big boost to HSA’s. If employer contributions to the HSA account are included in the limit, you would see employer contributions capped when employers could no longer deduct the contribution. This would touch off lawsuits by older workers who would be penalized by having higher health-care costs ,” observed another.
“I think that, no matter what the outcome, the American worker will end up paying a bigger share for benefits, with some people going without benefits altogether and perhaps even jobs,” noted one.
Another foresaw: “No benefits…not expensive.”
“The most important result would be a boon to the medical benefit plan consulting business,” noted one, while another predicted that “HR consultants would make out big finding ways around the deduction for executives at many companies, just like they did when executive compensation’s tax deductibility was capped at $1,000,000, and they started having compensation given as bonuses to try to get around that law.”
But this week’s Editor’s Choice goes to the reader who wistfully noted, “Now, if we only had a “Healthcare Benefit Guaranty Corporation….”
All signs point to less benefits in the future, whether this becomes law or not. 🙁
In response to your question on taxation, should the government decide to tax employers on the benefits offered to employees, I believe the change we will see is in the cost of the product each employer sells.
Employee's will continue to want to work for an employer who offers good benefits, Employers will continue to need good employee's, thus Employers will just pay the cost of the tax, and the consumers will be hit with the bill so that the employers can continue to make a profit.
Bottom line is that the government would be increasing inflation, and yet no great benefit came to the people. (What are they going to do, give the extra money to FEMA? HAHA.
To make health insurance a taxable event to either the employee or the employer would add thousands of additional citizens to the roles of the uninsured. If health insurance becomes a taxable event to the employer, with the already double digit increases in keeping the plans they have, employers may be forced to either drop or offer reduced coverages to their employees. If the Employer offers reduced coverage to the employee, using the coverage the employee has may become too expensive to use and then we see more people showing up in emergency rooms , (the most expensive care),that may have been helped previously in a doctor's office. If the employee is taxed, the money the employee would have used to make co-pays has been paid in taxes, the insurance becomes too expensive to use and employee again show up in emergency rooms with problems that might have been cared for earlier in a doctor's office. OR the employee elects to forgo the health insurance al-together, and ends up with no insurance. Health insurance coverage for many employers and employees is in too precarious a situation to have outside forces make the cost increase at a faster pace than it currently is.
A or maybe C; if you tax something there will be less of it. This move is totally in the wrong direction. Tax laws should encourage employers to offer and for employees to have medical insurances. There is long precedent for NOT taxing certain fringe benefits. What next - a tax on coffee or water @ work?
d) No real impact on benefit offerings. This would be another tax on employees, but in the case of health insurance, the benefit is too important to employees. If this legislation is successful and other benefits begin to be taxed, employees who are given the choice may opt out of benefits that are marginally beneficial to them.
G (other). Less benefits, and those that are retained will be more expensive, BUT that only applies to the average worker. Those lucky folks earning at the high end will receive more benefits at lower costs. Why is this? Because all Bush administration social & monetary policies are designed to benefit the most wealthy segments of our society, and if these benefits do become taxable, you can bet that the taxation will only hurt the non-wealthy but actually reduce the total tax outlays of the wealthy.
How might this be achieved? The law will contain an exemption clause, allowing employers to not be taxed on the benefits offered to certain classes of employees, as long as the employer pays some minimum level of taxes on the benefits. And this exemption clause will give the employer the biggest tax break if the class of employees receiving the exemption is also the highest-paid class at the firm.
C: fewer benefit for more money. To know how it is for someone you have to walk in their shoes - so we'll all get a chance to experience Katrina first hand.
Less benefits definitely. This is a very, very bad idea. Employers are struggling to keep health benefits in place as it is. We have decided as a nation to make health care the responsibility of the employer. If we don't want the employer to run any away from that staggering responsibility any faster than is already occurring, we must not tax these benefits, for the employer or the employee. There are few incentives for an employer to want to be in this business as it is.
What with employees who always want more, the appeals process that seems to have forgotten that health care is based on contractual elements - if the contract doesn't cover the benefit, it shouldn't be open to appeal - and the incredible cost involved, this could well be the straw that breaks the camel's back, as the saying goes. BAD, BAD idea.
I am sure there most be other sources for the money. I can think of one huge drain in the news everyday but we won't go there in this discussion...
Think (a) less benefits....if employers lose the tax deduction for health care benefits I think they will offer less benefits. Employers are already struggling with benefit cost increases and they are tax deductible......I don't think the proposal will help reduce the cost of health care....health care providers (hospitals, doctors, labs, pharmaceuticals, companies that provide the tools used by medical practitioners, etc.) don't care whether the dollars they receive were tax deductible or not....the only thing that might reduce the cost of health care is a significant reduction in the numbers of patients seeking care...as long as we continue to seek medical care and continue to find a way to pay for it, the health care industry will continue to charge more each year. The money tree has to dry up before those delivering health care will reduce prices to entice the return of patients.
Other -- But for very senior management, there would be a society-wide cap on employer support for benefits at the tax imposition level. The proper question is "What would be the effect of that cap?"
h--- No benefits.....not expensive.
You have got to be kidding. The boss does nice things for our hard-working employees and big brother is going to zap both of us?
(a) Less benefits...
And increasingly more expensive with time
Answer g: Let me see. The employee has had a major illness or accident. He or She has been out of work. The employee has been subjected to higher deductibles and higher coinsurance burdens and has also faced numerous other cost shifting strategies. It must not be an election year?
I would expect a) less benefit as well as f) different benefits. HSA, no matter how you look at it, is less benefit, with lower cost, and would fall under either of these buckets. I think employers may already be heading down a less cost model, whether that be cutting or changing design etc (but less cost today is still more cost from yesterday)
There would be (a) fewer benefits, and/or (f) different benefits, and possibly (g) other when the accountants get involved.
C) Less benefits that are more expensive.
The tax would depend on whether they ever get healthcare costs under control (and the industry in general under control) and take a stiffer stance with the excessive lawsuits that seem to plague the industry. Then, maybe a tax would be okay.
How about until that happens, Congress just kicks in from their salaries, the equivalent of the tax revenue that would be raised from this proposal?
Heyâ€¦health care is too expensive (for the actual coverage you receive) as it is. If this keeps going, there will be less access to benefits. No one (businesses or participants) will be able to afford them. I don't see how taxing those benefits can do anything but make matters worse. So, let me get this straightâ€¦we are talking about taxing these benefits because there's some need for an increase in federal revenues. But, the powers that be say that the Bush tax cuts for the wealthy are vital for long term success. So, those are likely to stayâ€¦sounds to me like the little guy is getting a raw deal.
WOW what a question. Can I just pick every answer? I think I can make a pitch for each one. But my answer is probably C. If the employer is taxed, that really messes with the employer's budget. They just won't be able to offer a much and the cost sharing with move farther to the employee. This would probably give more push to HSAs. Pretty soon employers are going to say why am I providing benefits and just quit doing it. It will turn into employee pay all. Can you imagine paying it all yourself and being excited just because you have access to a group plan?
It would have to be a combination of (c) less benefits that are more expensive and (f) different benefits. We know that all employers are concerned about their bottom line. Just look at ESPP programs and how many employers terminated them or reduced the discount provided to employees due to FAS 123.
For the last few years there have been countless articles on employers shifting cost. Taxing these benefits will cause this to happen at a much larger rate, either by new plan design or by benefit cutbacks. If this actually happens it could lead to the virtual death of indemnity/PPO/POS/HMO plans and instead we will probably have a tremendous increase in the number of defined contribution medical plans
I've heard this idea floated for years and really hope it never comes to pass. If it does make it into law where the employer starts to pay taxes I'm certain we will (d) not change our benefit offerings but will (g) pass all the additional employer costs directly to the employee with even higher employee premiums.
Employer paid insurance was another great benefit that came out of the post WWII worker boom that sent this country to the top of World productivity. It is disappearing fast with many employers passing the premiums to employees in full are part. With 125 plans employees can at least currently pay with pretax dollars like the employee.
It would be nice if congress just once considered spending less rather than beating the taxpayers up for more tax revenue. Didn't I hear in an old civics class that those clowns are supposed to work for us!
I don't think congress would actually pass this recommendation - it would be far too unpopular. But IF it would pass, I think it would ultimately result in less benefits through employers. A number of companies, especially small ones, would probably drop health benefits if there is less or no tax advantage. Plus there would be those employees who would not elect health coverage offered through their employment simply because they could not afford the premiums, co-pays and additional tax burden.
Since we are in the retail setting and customers are being more careful with their money, it would definitely be (c), less benefits that are more expensive. Thinking anything else would go against my first principle of living "There is no free lunch".
C - Nevin: Now, if we only had a "Healthcare Benefit Guaranty Corporation"...
G - The most important result would be a boon to the medical benefit plan consulting business.
My answer is a combination of "a" and "b". I think the increased costs would force many employers to offer less benefits than they do now and those benefits would cost more than they are paying today for richer benefits.
Historically, employers in this country have provided health care to full time employees as a fringe benefit. The US has the most expensive medical care in the world by a large margin and our mortality rate (the ultimate measure of effectiveness) now ranks about 30th among nations. No single employer nor group of employers can effectively deal with a dysfunctional system that eats about 1/6th of the GNP.
American business collectively has two choices -- (1) tell the US government to set up a Medicare type single-payer system for everyone (3% of every dollar goes to administration) or (2) retain our system of private health insurance (25% of every dollar goes for administration). Unfortunately the individuals donating enough to campaigns to influence legislation neither trust the government to attend to anything nor really need employer help to pay their medical bills.
The net result is already showing -- fewer and fewer employers are providing health insurance for their employees; more and more people are unnecessarily ill because they have no health insurance. The entire economic engine suffers. It will get worse.
My guess is that we will get a single-payer system after the situation gets "bad enough." It will be written in a union hall in Chicago or New York by individuals who have been aggrieved by, but do not understand, the current health care system. It will be a disaster.
PS -- I know, more than you wanted to hear.
(a) Less benefits. Companies will use the tax limit as their benefit limit passing the remaining cost to employees. The ultimate impact will be far worse on mid and low paid employees. This seems to be another example of the current administration doing big business's dirty work for them.
I think you'll see (f) different benefits. It would shift more money into the high-deductible and less expensive health care plans, so the limit wouldn't be exceeded, and then put money into the HSAs, which do enjoy the tax-favored treatment.
(g) a, b, c, & f.
Nevin: I certainly think there would be fewer benefits and they'd be more expensive, however, the expense component would continue with or without a change in tax treatment -- witness the trend for the past few decades. It's certainly interesting that our dear government would consider this tactic, along with the mortgage deduction as a means of partially offsetting the potential loss of revenue caused by the AMT. Isn't the real problem with health care delivery focused on the legal system in this country? Aren't the costs of developing new drugs and delivering medical care associated with the cost to defend some of the mistakes inherent in any human endeavor, yet merely exacerbated by sometimes) frivolous legal action? Limiting frivolous law suits might be a better answer, thus allowing the expansion of R&D and the risk-taking characteristic of Americans ... aaaaaarrrrrgghh (fade to black with visions of John Belushi as the Samurai Warrior)
I think that no matter what the outcome the American worker will end up paying a bigger share for benefits with some people going without benefits altogether and perhaps even jobs.
Employers will certainly try to keep costs down one way or another.
Tie the changes to a flat tax as Steve Forbes as proposed and I am interested. Filing taxes one a one page form would mean everyone could be audited and tax shelter scams a thing of the past and the govt. would receive more in tax revenue.
I think (a) Less benefits, (f) Different benefits, and (g) other, and, above all, (b) More expensive benefits . . . . I don't agree that putting a cap on health-benefit deductions "would help rein in upwardly spiraling health-care costs" -- it will just change who pays for them. Employers will not want to eliminate benefits coverage altogether, as a competitive matter (hiring/retention), so will retain coverage for lower levels if it remains deductible, at least for as long as they can afford to do so. To keep the tax deductibility of their payments for any coverage, employers may choose to convert from employer-paid to employee-paid coverage (at least at the higher levels) and gross-up employees with a one-time salary increase. This change would likely fuel the wide use of (a) health savings accounts and high deductible health coverage, (b) individual health purchasing cooperatives, and (c) elective individual coverage at group rates for which the big employer negotiates, like the current practices on employee-paid optional long term disability or non-basic group life coverages. Unfortunately, when "coverage" shifts to direct compensation, it tends not to increase very fast thereafter below the CEO/senior executive level, so health benefits over time will become an increasing cost to all employees. But how is that any different from expectations under the current system?
In answer to the survey on the effects of taxing Health Benefit Expense: It depends on how the tax is weighted... If the burden of increased cost (loss, or reduction of deduction) is on the Employer then that is an increase in Cost of Labor; i.e., Payroll expense. This would be an immediate and direct cost to target for reduction. So, (a) Less Benefits in General would be the effect. Employers would shift costs to employees; employees would accept cuts in benefits to preserve take-home pay.
If the impact swung to the Employees (by lowering or eliminating the exemption from payroll taxes) it would impact both payroll expense to the employer (increased payroll tax, f.i.c.a.), and supplemental health costs (under cafeteria plans) for the employee. So, (c) less benefits that are more expensive would be the result of the Employee burden; and, (a) Less Benefits in General would be the result of the Employer burden.
The net result in any event would be (a) Less Benefits. This is hardly a noble objective at a time when national health care is approaching a needs vs. provider crisis.
(c) Less benefits that are more expensive! We think it's a horrible idea
-- Basically they'll be taxing the sickest people who may be out of work due to their (or a family member's) illness! There has to be a better way to generate tax dollars!
I think the idea of eliminating the tax benefits for the provision of employer-provided medical benefits so that there can be a repeal of the AMT is ludicrous at best. Having said that, I believe if employers were unable to deduct all or some of the medical costs associated with the provision of health benefits, there would be fewer employers offering health benefits to employees. I also think it insane that someone thinks that that this proposal will curtail the spiraling costs of health benefits. Essentially, employees will be left to fend for themselves to find affordable health coverage. The cap of $ 11,000 per year would most hurt small employers who are forced to pay more for the health coverage of their employees.
(a) Less benefits. Of course he's trying to tax employers and employees - he has to make up for the billions he lost by not taxing the rich.
I am voting for a, f and g.
We are a non-profit organization, as an employer we have been struggling with the increased costs of insurance, to add taxes in addition may cause us to have to rethink providing the benefit.
As for the employees having the benefit taxed they are struggling to make ends meet, not necessarily that unusual these days, but if employees have to pay taxes on insurance benefits I can easily see the employees requesting to opt out of insurance to receive the cash to either purchase their own private policies or use the funds to cover other increased costs, like gas, and just doing without health coverage. Which brings forth the ugly question can our health system stand more people who are not covered or do not have the ability to pay for health care?
I predict that HR consultants would make out big finding ways around the deduction for executives at many companies, just like they did when executive compensation's tax deductibility was capped at $1,000,000 and they started having compensation given as bonuses to try to get around that law.
For small business and rank and file, it would be a big boost to HSA's. If employer contributions to the HSA account are included in the limit, you would see employer contributions capped when employers could no longer deduct the contribution. This would touch off lawsuits by older workers who would be penalized by having higher healthcare costs.
That's my prediction.
A law to tax benefits at the employer level will cause the sponsoring company to reduce them. There may also be an effort to renegotiate costs with benefit providers. There may be some companies that do not reduce benefits, but in the whole economics tells us that costs will dictate behavior.
I think employers would limit benefits to the allowable amount. As the cost of benefits goes up, the amount of benefits would necessarily decrease.
Note: This is certainly no way to increase the number of insured employees...it could easily become an excuse to decrease or eliminate them. What is the government thinking? (Other than ways to increase THEIR revenue)