Comments on: AOT #182: T. R. Reid Podcasts The Healing of America: A Global Quest for Better, Cheaper, and Fairer Health Care http://authorsontourlive.com/tr-reid-podcasts-the-healing-of-america/ Weekly Podcasts of Authors and Their Books, Live From The Tattered Cover Book Store. Authors ranging from Al Franken to Joan Didion read from and discuss their newest books. Tue, 06 Mar 2012 20:08:46 +0000 hourly 1 http://wordpress.org/?v=3.3.2 By: Bill http://authorsontourlive.com/tr-reid-podcasts-the-healing-of-america/comment-page-1/#comment-90903 Bill Sun, 21 Nov 2010 01:23:35 +0000 http://authorsontourlive.com/?p=459#comment-90903 Mr Reid, in an interview yesterday, did not seem to be aware of the power of the tax incentives associated with employer provided health care insurance. The exemption from taxation, done in the 1940s, was so powerful, that it basically created our current system. Contrary to what he said, it will continue to be powerful, and will continue in health care reform, and not be eliminated by the exchanges. Mr. Reid's response to the woman who called, asserting that all company health care coverage would be dropped, and we would all end up on plans from the exchange, costing us more was really poor. Her claim was that the maximum of 8% of gross, above which people get subsidy, would not be enough to offset the loss of the employer paid subsidy. Apparently, Mr. Reid's mind went blank, and he agreed with her. What she did not know, and Reid forgot, was that employer plans now get a government subsidy of 25% to 50%, and will continue to. It costs companies far less to buy insurance, than the price they ostensibly pay. Companies, particularly large ones that employ half our workers, get a substantial tax subsidy, which will continue. Consider how the tradeoff looks for a company looking to save $100 by dropping a tax deductible benefit, like health care, which is not taxed either to the company or the employee. To give the employee an extra $100, the employer will need to pay employer FICA match, of about $7, making the cost to the company $107. What happens next is that the employee pays another $7 for FICA, so the net is now $93. Next, the employees marginal tax rate, from 10% to 35% is taken out. Now the amount available to the employee is between $58 and $83. Finally, most states have income taxes, where the marginal rate is likely to be between 4% and 8%. This leaves the employee with a net of between $50 and $75. Employers get Health Care policies that are about 15% less expensive, because they are buying in bulk. If a company drops $100 worth of health insurance, it means that the employee will now have 50% to 75% of the amount, with which to purchase insurance that will be 15% more expensive. Employers have taken to Health Insurance, because they can buy it wholesale, for tens of thousands of workers, at low rates, They also love it because it allows them to compete for workers, particularly higher pay workers, through untaxed benefits, which are worth much more to employees than money to buy them would be. Companies that drop health care will be faced with loss of workers, particularly their more valuable workers in the higher marginal brackets. Of course you might view that the employer might just eliminate the benefit, as a cut to the workers, but at that point the $100 becomes profit, so you can figure it is taxed at 30% or more, leaving the company with less than $70 anyway. Just in case the employer is willing to lose employees, the HCR bill also has a tax that must be paid by large companies that do not offer company plans. This tax subsidy continues to exist under HCR. This was an important consideration in the crafting of HCR. Too bad Mr Reid blanked out at the wrong moment. Mr Reid, in an interview yesterday, did not seem to be aware of the power of the tax incentives associated with employer provided health care insurance. The exemption from taxation, done in the 1940s, was so powerful, that it basically created our current system. Contrary to what he said, it will continue to be powerful, and will continue in health care reform, and not be eliminated by the exchanges.

Mr. Reid’s response to the woman who called, asserting that all company health care coverage would be dropped, and we would all end up on plans from the exchange, costing us more was really poor. Her claim was that the maximum of 8% of gross, above which people get subsidy, would not be enough to offset the loss of the employer paid subsidy. Apparently, Mr. Reid’s mind went blank, and he agreed with her. What she did not know, and Reid forgot, was that employer plans now get a government subsidy of 25% to 50%, and will continue to. It costs companies far less to buy insurance, than the price they ostensibly pay.

Companies, particularly large ones that employ half our workers, get a substantial tax subsidy, which will continue. Consider how the tradeoff looks for a company looking to save $100 by dropping a tax deductible benefit, like health care, which is not taxed either to the company or the employee.

To give the employee an extra $100, the employer will need to pay employer FICA match, of about $7, making the cost to the company $107. What happens next is that the employee pays another $7 for FICA, so the net is now $93. Next, the employees marginal tax rate, from 10% to 35% is taken out. Now the amount available to the employee is between $58 and $83. Finally, most states have income taxes, where the marginal rate is likely to be between 4% and 8%. This leaves the employee with a net of between $50 and $75.
Employers get Health Care policies that are about 15% less expensive, because they are buying in bulk. If a company drops $100 worth of health insurance, it means that the employee will now have 50% to 75% of the amount, with which to purchase insurance that will be 15% more expensive.

Employers have taken to Health Insurance, because they can buy it wholesale, for tens of thousands of workers, at low rates, They also love it because it allows them to compete for workers, particularly higher pay workers, through untaxed benefits, which are worth much more to employees than money to buy them would be. Companies that drop health care will be faced with loss of workers, particularly their more valuable workers in the higher marginal brackets.

Of course you might view that the employer might just eliminate the benefit, as a cut to the workers, but at that point the $100 becomes profit, so you can figure it is taxed at 30% or more, leaving the company with less than $70 anyway.

Just in case the employer is willing to lose employees, the HCR bill also has a tax that must be paid by large companies that do not offer company plans.
This tax subsidy continues to exist under HCR. This was an important consideration in the crafting of HCR. Too bad Mr Reid blanked out at the wrong moment.

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