As has been trumpeted by some and bemoaned by others for years now, the Patient Protection and Affordable Care Act, better known as Obamacare, mandates, beginning Jan. 1, 2014, that all Americans obtain health insurance or else pay a penalty. This policy is similar to the Massachusetts law passed under former Governor Mitt Romney’s leadership, so the mandate will have little affect on the already-insured state. However, the law also contains a provision set to take effect on the same date which mandates that all employers with 50 or more employees provide health insurance to their full-time workers or else face a $2,000 per employee tax penalty. This mandate is the worst part of the entire Act, as it strengthens the misguided idea of employer-provided health insurance.
Employer-provided insurance is not, and has never been, in itself a good idea. The system is burdensome, inefficient and unnecessarily complicated. Not only does it mean that one must scramble for insurance when changing or in-between jobs, but also that the employee has little to no actual choice as to what coverage he or she receives. The only reason that such a terrible system even exists in the first place was that it is, simply put, an easy form of tax evasion.
Employer-provided health benefits are not taxed, and thus employers have been using them as part of workers’ compensation for a long time now in order to pay a smaller tax bill on the same net compensation for their workers. This tax exemption, a World War II-era relic known as the Healthcare Tax Exemption, accounts for a staggering amount of lost tax revenue – more than $300 billion per year, according to a Joint Committee on Taxation report.
To compare, the Congressional Budget Office reported that the U.S. budget deficit for this fiscal year, ending Sept. 30, will be $642 billion , meaning that the Employer Tax Exclusion tax exemption for employers accounts for nearly half of our overall deficit. The CBO reports that the United States’ entire federal spending is about $3.6 trillion for this fiscal year, so the healthcare exclusion is worth just about 10 percent of our entire federal budget.
Not only is the healthcare exemption extremely expensive, but it also affects a startlingly high percentage of the American workforce. More than 60 percent of Americans under the age of 65 have employer-provided health insurance coverage, while only 4 percent purchase it for themselves. A large majority of the population is trapped in these employer-provided plans, as the current tax code strongly incentivizes such policies.
This incentive has no valid purpose. The only argument for its continued existence is that repealing it would disproportionately affect the majority of the population with employer-provided insurance, a situation spawned by this very system. The healthcare exemption’s only purpose is to maintain the system it created, and that is the worst reason for anything to exist.
The Healthcare Tax Exemption perpetuates a woefully inefficient system, under which employers are required to divert valuable resources to managing benefits, employees have no choice or mobility in health coverage, and less tax revenue is collected. This exemption, which only exists to perpetuate the system it created, must be eliminated, not strengthened, as has happened with the Affordable Care Act.
Stefan Herlitz is a Collegian columnist. He can be reached at email@example.com.