Miami Herald –

July 20: For 60 years, American workers have received job-sponsored healthcare benefits that neither they nor corporations pay taxes on, but some groups are pushing for an end to that arrangement. A special presidential commission is weighing whether to recommend ending their tax exemption when issuing its report Sept. 30 on how to overhaul the tax system.

On Capitol Hill, aides to tax-writing committee chairmen said ending the exemption had become "background chatter" in both chambers of Congress. Some South Florida experts are skeptical of the idea. They point to the huge tax bite for those who get health insurance at work.

Surveys by the Kaiser Family Foundation show that the average work-based coverage totals $9,950 a year for both employer and employee contributions, which are not now taxed. If they were taxed at a basic rate of 25 percent, that means the average family would find themselves paying an additional $2,500 next year in taxes.

Today's system of employer-provided healthcare dates to World War II, when the federal government imposed wage caps to help the wartime economy. Unable to offer higher wages to attract scarce workers, companies offered health insurance.

The war ended, but job-based insurance stuck. By the mid-1950s the Internal Revenue Service code favored it. Companies were allowed to deduct the costs of employee healthcare plans from their taxable income. For employees, those often-generous benefits were separate from taxable wages.

Those without work-based insurance don't get the tax break.

Census Bureau data show that 82 percent of Americans who earned more than $75,000 last year had job-sponsored health plans excluded from taxation, but only 23 percent of Americans who made less than $25,000 did.

ENDING TAX EXCLUSION

Some right-leaning advocates think the tax exclusion for job-sponsored health benefits should end because it distorts the free market. The Heritage Foundation, a conservative policy-research center, says the exclusion leaves consumers in the dark about the real costs of healthcare, leading them to make uninformed decisions that ripple through the healthcare economy, driving up costs.

"The idea of an employer determining what is best for them is increasingly untenable," said Robert Moffit, the director of Heritage's Center for Health Policy Studies.

"How is this going to solve the healthcare problems?" asked Daniella Levine, executive director of the Human Services Coalition of Dade, which is concerned with the uninsured. "I'm not understanding how this translates into helping the needs of those without insurance."

Conservatives say the answer is tax credits, which should be tied to ending the tax exclusion on health coverage. Persons could get tax credits up to a set amount to purchase on their own.

"The mechanics of doing it don't have to be revolutionary," said Mark Pauly, an expert on healthcare costs at the University of Pennsylvania's Wharton School. "The main problem now is that the exclusion makes expensive insurance look cheap."

Santiago Leon, a Miami insurance broker and healthcare activist, said tax credits might work for the young and the healthy, but not the middle-aged or those with "pre-existing conditions."

"Then you've got problems," Leon said. "Insurance companies don't want you, or want to charge very high prices. They exclude the worst risks. Where are those people going to go? Nowhere." That's why individual insurance has always been a limited, expensive market.

The chairman of the tax-writing House Ways and Means Committee, California Republican Bill Thomas, has repeatedly criticized the exclusion of health plans from taxation. Any restructuring of Medicare, Social Security or the federal tax code must go through his committee. Changes in all three areas are being debated in Congress.

Earlier this year, the Congressional Budget Office, the legislature's analytical arm, estimated that eliminating the tax exclusion for employers and employees for healthcare benefits could raise $195 billion by 2010, and $705 billion through 2015.

If employer-provided life insurance were treated as taxable income, that would raise another $9.7 billion through 2010, and $22.4 billion through 2015. While those numbers may appeal to lawmakers looking for ways to close a funding gap, few people welcome paying more taxes. "The economics of it are easier than the politics," said Jack Meyer, the president of the Economic and Social Research Institute in Washington, which champions ending the exclusion.