Subject: Health Insurance: Taxable to Employees? Comment: I wish to caution the panel IN THE STRONGEST POSSIBLE TERMS ABOUT THE PERILS ASSOCIATED WITH A CAP on employer-paid health insurance, beyond which premiums become taxable income FOR EMPLOYEES. I believe I heard a couple of scenarios: one, that the premium cost above $11,000 dollars paid by employer becomes taxable income to the employee; another, that the employee could be required to pay that premium cost above $11,000. My concern is for older employees. Health insurance increases every year, and increases substantially when the insured ages into the insurer's next age bracket. Perhaps none of you actually pays your own health insurance bill...it would appear that no one there does, or you would suffer sticker shock. You must be extremely careful not to jeopardize health insurance for those who have it, making it prohibitively more expensive so that more people wind up without health insurance. That's certainly not your goal. At any rate, please be advised that any caps should take age into consideration. You discussed allowing the first $11,000 or so of annual health insurance premiums paid by the employer to be tax-exempt to the employee, with the amount over $11,000 to be taxable income to the employee. The older married worker with dependents will have a much larger health insurance premium than a younger worker with a family. (Anyone with younger children has no idea how expensive they become at age 16 when they start to drive and at age 18 when they start to college. Therefore, the older worker has not only higher health insurance premiums, but greater expenses for offspring.) Consequently, how about considering the top $3,000 per employee taxable? The employer may pay $15,000 annual premium for one employee and $18,000 for another. Each would have $3,000 taxable, but the one would get $12,000 in health insurance benefits untaxable, while the other would get $15,000 in untaxed benefits. And while Mr. Rosetti said the employer could simply cut the employee a $3,000 check to cover the portion of the health insurance premium over $11,000, he fails to take into consideration that most employers would probably prefer to just pay the health insurance premium, as opposed to triggering matching social security on that extra $3,000. Also, that $3,000 extra salary doesn't stay $3,000, once FICA, Medicare, Federal, State, and local taxes are withdrawn, meaning it won't cover the extra cost of the actual health insurance premium. And, that extra $3,000 could well push someone into the next tax bracket, necessitating increased withholding to make up for the shortfall. The smartest move you could make is this: since there's a real push toward High Deductible Health Insurance Plans with accompanying Health Savings Accounts, why don't you let those accounts get funded in toto BEFORE, I repeat BEFORE people switch from an HMO to the High Deductible Plan? This gives people a cushion BEFORE the switch, instead of expecting them to put 1/12 into an account per month during the first year. This is nuts!! Let that account get totally funded for the first year BEFORE making the insurance change. People will be more judicious about using their Health Savings Account, barring traumatic illness. Then, make high deductible plans 100% deductible, and HMO's 80% deductible or something on the employer's corporate return. A few other thoughts come to mind: 1.I would imagine that the small businesses that neglect to offer health insurance are sole proprietorships. It is my understanding that corporations must offer the same insurance to employees as that maintained by corporate officers. Perhaps you should encourage sole proprietorships to incorporate. 2. I'd imagine that many sole proprietorships fail to offer health insurance because of prohibitive cost. I don't know what to do about that. 3. And how much has HIPPA cost health care providers,etc. to adhere to? These privacy notices just seem like they increase the cost of health care to me. 4. Why aren't certain expenditures tax deductible? License Plates, Auto insurance? If I'm required by law to have it, I should be allowed to deduct it! Thanks for the opportunity to write. |