My post yesterday on Richard Burr’s health insurance tax credit bill still left some people confused about who would benefit and how, so this is an attempt to bring more clarity about how the system works and how it would change. The short answer is that the tax credits do not change an employer’s incentives, but will provide tremendous benefit for the uninsured, those who purchase insurance on their own, and people who have to pay extremely high premiums to get family coverage through their employers. It will also help those between jobs who have to purchase COBRA coverage. Because it’s a credit and not a deduction, it is essentially a refund on health care costs up to $2,160 for an individual $5,400 for a family
Right now, insurance doesn?t count as compensation, so it?s not taxed, which benefits people in higher tax brackets and those with higher benefit plans more than others. This also leads to stupid statistics like insurance premiums rose 7% while wages rose just 3%. If your insurance cost $10,000 and your salary was $30,000 before the increase, your insurance benefit is now $700 higher and your pay is $900 higher. Your total compensation has gone from $40,000 to $41,600 ? a 4% increase. You just never get to see $900 of that and so get angry if the copay and deductible increase. The copay and deductible, however, are probably still a lot lower than what you would consider reasonable if you bought insurance on your own. The result of all this is that people with insurance have richer plans than they need and are less exposed to the cost of care, so they use more.
Now consider the increasing number of people whose employers do not provide insurance because the cost of care and coverage are rising. If this is you, anything you pay for health care up to 7% of your income is after taxes. Doctor visits, insurance premiums, prescriptions, trips to the emergency room, all of it. Health savings accounts (HSAs) allow tax-free deposits and withdrawals for expenses other than premiums, but they have to be tied to a high-deductible policy. Burr’s credit would apply to the cost of care and to premiums and so would complement HSAs. Big HSAs or tax reform would be even better, but this is a positive step.
