Employer group benefits drive up health care costs

Forums: Health Care Benefits, Taxable Income, Health Care Economics
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If you have a job with benefits, the cost of your benefits is not factored into your income as reported for tax purposes. If it was, employers and insurers would work harder to lower their costs, because their employees would then be able to qualify for a lower tax bracket with the same quality of health care and other benefits.

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Type: Discussion • Score: 3 • Views: 686 • Replies: 28

[+4] - Linkat - 08/29/2019[quote="livinglava"] Do you think it would help or hurt the process if employers had to report the value of benefits so that employees' wages would reflect the total value of their...

@livinglava,

It is idiotic to have employers provide health insurance. There is no reason that this should be the case... it started as a loophole to get around war rationing, and then kind of stuck for no rational reason.

I don't think the details of how this ridiculous system works matter. It is a ridiculous system no matter how you tweak it.

1 Reply

@maxdancona,

Are you opposed to Obamacare?

1 Reply

@Real Music,

As opposed to what? If you offer me a choice between Obamacare and something more idiotic, I guess I support Obama care.

If you were going to design a healthcare system that made sense from scratch.... it wouldn't be Obamacare.

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@maxdancona,

If you have something else in mind, something legitimately workable and affordable, then by all means, tell what it is and then bring it to D.C. so the pols can get cracking on turning it into the law of the land!

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@maxdancona,

Quote:

As opposed to what? If you offer me a choice between Obamacare and something more idiotic, I guess I support Obama care.

If you were going to design a healthcare system that made sense from scratch.... it wouldn't be Obamacare.

Okay.

Do you have any suggestions or ideas?

1 Reply

@maxdancona,

maxdancona wrote:

As opposed to what? If you offer me a choice between Obamacare and something more idiotic, I guess I support Obama care.

If you were going to design a healthcare system that made sense from scratch.... it wouldn't be Obamacare.

Well said.

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@Real Music,

There is more than one way to do it. (In Computer Science we shorten this to TIMTOWTDI).

It makes zero sense for a health care system to be based on where you are working (or whether you are working). I haven't heard one good reason that an employer should provide health insurance. Can you give me one?

Personally, I would prefer a single payer system. But there are other ways to provide health care that make sense.

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Do you think it would help or hurt the process if employers had to report the value of benefits so that employees' wages would reflect the total value of their compensation, including the value of any benefits?

Doing so would make the wage gap between benefits and no-benefits jobs more quantifiable, and it would also make the gap between jobs with more expensive benefits packages and those with less expensive benefits quantifiable as well.

But would quantifying these differences in compensation make it easier or harder to deal with disparities and for markets and/or government to respond to them?

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@livinglava,

I have been pretty clear on my opinion. Employers should be taken completely out of the equation.

I don't think making the value of benefits more clear would solve anything. It is comparing apples and oranges anyway. When I did a contract job with no benefits calculating the cost of health insurance wasn't very difficult.

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@maxdancona,

maxdancona wrote:

I have been pretty clear on my opinion. Employers should be taken completely out of the equation.

I don't think making the value of benefits more clear would solve anything. It is comparing apples and oranges anyway. When I did a contract job with no benefits calculating the cost of health insurance wasn't very difficult.

It allows employers to pay more in total compensation while giving their employees the benefits of lower income for taxes, etc. It is somewhat similar to what Bernie Sanders and others have accused Walmart of doing by paying low wages that are subsidized by government welfare programs.

If employees couldn't look forward to being in a lower income tax bracket by choosing an employer who pays more in benefits, that would put pressure on employers to shop for less expensive benefits packages, which in turn would stimulate insurers to work harder at bringing costs down.

That is my analysis. Others may analyze the market effects differently.

1 Reply

@livinglava,

Why not just separate health insurance from employment? That way employers would just pay a simple salary for work done.

1 Reply

@maxdancona,

Quote:

Personally, I would prefer a single payer system.

Okay. I can respect that.
I wasn't aware that you supported single-payer Medicare-for-All.

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@maxdancona,

maxdancona wrote:

Why not just separate health insurance from employment? That way employers would just pay a simple salary for work done.

That could be good or bad, depending on different perspectives, but it is a separate discussion.

Currently, many employers do offer benefits packages to certain employees, and the full value of their salaries-plus-benefits aren't considered for tax purposes or in other economic analyses, as a far as I know.

So let's say you work two part-time jobs and make $25,000/year and someone else makes $25,000/year in a full-time job with benefits. Depending on the value of the benefits package, that $25,000 salary really amounts to some higher amount, e.g. $30k or $35k.

In fact, someone who receives more health care benefits because they receive more medical services actually receives more in compensation than someone who doesn't utilize their health plan as much.

Probably you would say it is unfair to put people into a higher tax bracket because they received more compensation in the form of health services due to them being sick, and you might be right; but the same person who is uninsured and pays for the same health care services out of pocket has to pay taxes on the income they use to pay for those services, while the person who just receives the services as benefits only pays taxes on the amount they spend on co-payments and other out-of-pocket expenses.

So basically the fact that there are different insurance plans with different amounts of out-of-pocket payments puts people in much different income/tax situations than you would assume by just comparing their salaries as reported to the IRS.

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@livinglava,

livinglava wrote:

Do you think it would help or hurt the process if employers had to report the value of benefits so that employees' wages would reflect the total value of their compensation, including the value of any benefits?

Doing so would make the wage gap between benefits and no-benefits jobs more quantifiable, and it would also make the gap between jobs with more expensive benefits packages and those with less expensive benefits quantifiable as well.

But would quantifying these differences in compensation make it easier or harder to deal with disparities and for markets and/or government to respond to them?

As a knowledgeable and thinking adult I have quantified potential value of benefits myself before deciding to accept a job or not. One does not need to have a potential employer spell out the value of a benefit.

At one point in my life I was working for an employer that had unbelievable benefits. For example they paid 100% of your health insurance including your entire family - their choices of health insurance were also excellent. Not to mention bonuses were extremely high and retirement benefits were the best I had ever seen. As a result people rarely left which made promotions difficult as there were few job openings.

I decided at one point I would like a higher level position and had enough experience for it - my only option was to leave if I wanted it. So I quantified the value of these benefits as a bargaining tool for my next potential job.When interviewing and getting to the stage where an offer would likely be extended I gathered from the potential employer their benefits and coverage and compared the two and then figured in what my salary increase would need to be in order to get an increase I would deserve at a higher level.

Also since not everyone needs all the benefits a company would offer - quantifying this for yourself is more useful than having a company determine the potential value of their compensation. For instance if a company offers maternity leave of three months with full pay and you are a male or a female who does not plan on having a child - this benefit does not apply so adding this into the total value of compensation would be overstating your compensation.

Anyone with basic math skills and a little research can calculate their expected total value of compensation -- and should before excepting another position - requiring a company to do this themselves so all the world could see is an unnecessary expense for the company and would not be specific to an individual depending on their needs or wants of these benefits.

1 Reply

@Linkat,

Linkat wrote:

As a knowledgeable and thinking adult I have quantified potential value of benefits myself before deciding to accept a job or not. One does not need to have a potential employer spell out the value of a benefit.

At one point in my life I was working for an employer that had unbelievable benefits. For example they paid 100% of your health insurance including your entire family - their choices of health insurance were also excellent. Not to mention bonuses were extremely high and retirement benefits were the best I had ever seen. As a result people rarely left which made promotions difficult as there were few job openings.

I decided at one point I would like a higher level position and had enough experience for it - my only option was to leave if I wanted it. So I quantified the value of these benefits as a bargaining tool for my next potential job.When interviewing and getting to the stage where an offer would likely be extended I gathered from the potential employer their benefits and coverage and compared the two and then figured in what my salary increase would need to be in order to get an increase I would deserve at a higher level.

Also since not everyone needs all the benefits a company would offer - quantifying this for yourself is more useful than having a company determine the potential value of their compensation. For instance if a company offers maternity leave of three months with full pay and you are a male or a female who does not plan on having a child - this benefit does not apply so adding this into the total value of compensation would be overstating your compensation.

Anyone with basic math skills and a little research can calculate their expected total value of compensation -- and should before excepting another position - requiring a company to do this themselves so all the world could see is an unnecessary expense for the company and would not be specific to an individual depending on their needs or wants of these benefits.

I think you're missing the point that quantifying benefits-expenditures as part of total compensation would translate into more accurate reporting to the IRS, which in turn would allow the government to more accurately tax income.

1 Reply

@livinglava,

Health care premiums deducted from your paycheck come out before taxes so your argument makes no sense ...whether you end up paying the entire premium yourself you do not pay taxes on it.

Also read your W-2 it includes the amount that your employer paid contribution on your W-2.

1 Reply

@Linkat,

Linkat wrote:

Health care premiums deducted from your paycheck come out before taxes so your argument makes no sense ...whether you end up paying the entire premium yourself you do not pay taxes on it.

Also read your W-2 it includes the amount that your employer paid contribution on your W-2.

It doesn't include everything an employer and/or insurance spends on you. If it did, people undergoing expensive medical treatments would have to report much higher income levels than people who are healthy and thus not utilizing benefits.

You can argue that people who need medical treatment should be bumped to a higher tax rate, but the reality for people who self-pay for medical treatment out-of-pocket that they have to report their income prior to spending on health care.

If they make enough money to cover the medical expenses within their deductions, they might avoid those taxes; but people who don't pay enough taxes to cover their medical expenses by deducting them end up spending more on health care than people who pay enough taxes to deduct theirs.

What if everyone paid for their own health care out of pocket and no one got to deduct it from their taxes? Would that bring down health care costs by forcing health care providers to charge more affordable prices or would they just keep their prices high and wait for the economy to produce richer people to afford their services and products?

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@livinglava,

livinglava wrote:

It doesn't include everything an employer and/or insurance spends on you. If it did, people undergoing expensive medical treatments would have to report much higher income levels than people who are healthy and thus not utilizing benefits.

It does include anything an employer covers for the employee.

It does not include what the employee pays for themselves. Of course it does not include what the insurance company pays for you. But this is so dependent on the individual and a company would not nor would we want an employer to know what this amount is. This is personal information - not corporate.

I also would disagree that you include needed medical insurance coverage as income? Why would you if employer insurance coverage is deemed to not be taxed? Why would the health insurance itself be taxed?

This is also counter any sort of insurance. You are not taxed on the insurance coverage as a result of a automobile accident. The idea of insurance is to cover you when something of a large financial burden unexpectedly occurs. It is not income - it is to cover some sort of loss.

1 Reply

@livinglava,

Quote:

What if everyone paid for their own health care out of pocket and no one got to deduct it from their taxes? Would that bring down health care costs by forcing health care providers to charge more affordable prices or would they just keep their prices high and wait for the economy to produce richer people to afford their services and products?

This makes no economic sense whatsoever. Taxes and the price of health care are not related. Health care costs are independent of this. Whether someone pays out of pocket or pays via their insurance so it is before taxes has no impact of the price of insurance.

The only difference between paying out of pocket and paying via insurance coverage is that the insurance company can negotiate prices so the out of pocket individual ends up paying more.

If anything - paying before taxes gives more money to the employee thus giving him more purchasing power and improving the economy overall.

I work in the financial industry and what you are saying really makes little sense.

What you are proposing is going to hurt the average middle class worker that obtains health insurance from their employers. Not to mention anyone who ever uses health coverage if they are now taxes whenever they walk into a doctor's office.

I guess we need to revamp all the other insurance overages as well so whenever you have a car accident or if you have your home destroyed in a fire you are now going to be taxed on the "income" you get to obtain a new car or to rebuild your home.

That is great way to help the middle income people that just lost their 300k home in a fire and now have to not only rebuild it but pay $80k in taxes because they received "income" of $300,00 to rebuild their home.

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