Cutting Taxes For Insuring

Author : Regina Herzlinger
Publisher :
ISBN 13 :
Total Pages : 0 pages
Book Rating : 4.:/5 (137 download)

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Download or read book Box 12, IRS W-2, to the Rescue written by Regina Herzlinger and published by . This book was released on 2019 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Current tax law prevents workers from trading pre-tax employer-sponsored insurance (ESI) premiums for greater after-tax take-home income. Many workers thus may pay for health plans that are more expensive or have different features from plans they would directly choose for themselves. The tax subsidization of ESI also likely leads to excessive spending on health care because it lowers its costs relative to other non tax-subsidized goods and services. Some propose limiting or eliminating this employer-based health insurance tax exemption for these reasons; its regressivity; and its drain of potential tax revenues.Because of the long history and popular support for ESI, we consider these proposals as practically and politically infeasible. Instead, we simulate the financial results of expanding employee choice and ability to control costs within the traditional structure of ESI by allowing employees, either through Health Reimbursement Accounts (HRAs) or other tax-free mechanisms, to receive their employers' premium contribution directly and then purchase health insurance themselves from a larger number of health plans than those currently offered to them. The minimal choice in most current ESI plans may force enrollees into plans that do not reflect their preferences and thus imposes an allocative cost. Some empirical research indicates that enrollees would welcome expansion in their choice of plans and that it yields beneficial financial results. Other research, however, indicates that choice overload leads to sub-optimal selection results. It is likely that differences in the educational and transparency support resources partially explain these conflicting results. In our simulation, employees could deduct for income tax purposes the amount used for insurance and, if they spend less than the amount transferred, adjusted for a cross-subsidization holdback from lower-cost employees to higher-cost ones, take the remainder as taxed income. The simulation indicates that annual after-tax household income would have grown by $101-$252 billion and federal tax revenues increased by $39-$163 billion, depending on the concentration of risk in the ESI pool. Lower- and middle-income households gained proportionately more income than higher income ones. The greater take-up of slimmed down policies leads to reduced net spending in the health care delivery system, which, because of the large size of the ESI enrollee pool, would likely spill over to governmental health care programs. These results are based on three specific assumptions about the concentration of risk in the corporate pool and complete ESI implementation of our proposal.Research about the impact of reduced coverage insurance policies generally indicates that they are significantly lower priced. As for health status, the nation's largest social science experiment, conducted primarily in the 1970s, found that reduced coverage had no impact except for low-income people who are currently covered by Medicaid and the Affordable Care Act. However, subsequent analysis revealed that reduced coverage affected the use of preventive care, even if it was fully insured.Harnessing consumer choice requires a fully transparent and informative ESI system. Informed employee insurance selections require an adequate choice of reasonable insurance plans, disclosure by employers of their contributions, how much employee take-home wages are reduced to pay for ESI, the actuarial value of the plans, and how those employee contributions and actuarial values compare to peer firms and change over time. This enhanced disclosure will likely cause an increase in plan choice. Instructional and navigational support also appear to be key to effective choice of insurance plans.