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Health Reform for Beginners: The Employer Tax Exclusion
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| Contributor | RP |
| Last Edited | RP Jul 21, 2009 01:36pm |
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| Category | Analysis |
| Author | Ezra Klein |
| News Date | Tuesday, July 21, 2009 07:35:00 PM UTC0:0 |
| Description | It is perhaps evidence of the chaotic, unplanned, irrational nature of our health care system that the most decisive piece of health care policy -- save maybe Medicare -- is a World War II-era tax quirk. The Roosevelt administration had instituted wage and price controls to prevent profiteering. Excess profits were taxed at mind-bogglingly high rates. Wages were frozen so employers couldn't offer raises. But the government decided to exempt health benefits from these rules. So corporations took their wartime profits and plowed them into health care benefits. In 1953, with the war over, the IRS tried to overturn the rule. Congress overruled the IRS.
And so here we are. If you walk out, on your own, and attempt to give your friendly neighborhood health insurer a dollar, you're taxed on that dollar. If your employer gives the health insurer that dollar on your behalf, that dollar is not taxed. As a result, getting health insurance through your employer became -- and remains -- a much better deal than purchasing it with your wages.
This created, as you might imagine, a massive employer-based health insurance market. In fact, it made employer-based insurance the default, as you can see in the graph on the right. This has been bad for three main reasons. |
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