Monday, May 18, 2009

A Simple 101 Intro to Taxing Healthcare Insurance

The Disease Management Care Blog really wishes it was more interested in healthcare tax policy. It tried to pay attention during a recent C-Span rebroadcast of the 3rd Senate Finance Committee hearing that focused on where the money for Obamacare was going to be found. The DMCB tuned in while on one of those Hilton Hotel's exercise machine thingies with a built-in TV. Alas, the topic was a yawner and, well, the spandex on the treadmill to the right was just too distracting.

Uwe E. Reinhardt and the readable New York Times' Economix Blog to the rescue. It turns out that the tax code's treatment of employer-based health insurance is giving Congress a target rich environment. Since the full deductability of health insurance functionally represents a huge Federal subsidy, it's highly likely things are going to change.

Professor Reinhardt points out there are two basic approaches that could be used:

1) Tax any expenditure that for health insurance that exceeds a certain total value. For example, anything beyond a yearly expense of $10,000 in premium would be subject to a levy. One problem with this approach is that low wage earners would also be subject to the same tax as higher wage earners. That's unfair.

2) Only tax expenditures for health insurance when it pushes a total salary plus other compensation beyond a certain level. For example, any premium that pushes beyond a salary level of $75,000 would be subject to the levy. Since lower wage earners would be relatively protected, this would be more fair.

Of course, one big problem is the regional U.S. variation in healthcare costs. How the Congress will deal with this remains to be seen. It would be very complex to vary the tax code county by county. On the other hand, complexity doesn't seem to have stopped Congress before.

There. Now you can amaze your friends and colleagues with your familiarity with basic health care tax policy and continue to focus on the reform stuff that's really interesting. Like whether care plans are a key ingredient in the 'meaningful' use of a federally subsized EHR, the pros and cons of restricting the Medical Home Demo to practices at the 3rd tier of NCQA recognition, how bundled payments mechanisms may benefit disease management organizations and whether health insurers should cover bone marrow transplants for terrorist souped-up prion infestations - or whether the treatment should be denied because it's considered experimental.

As an aside, the DMCB is happy to report that it will be moderating a session tomorrow at the Chronic Care and Prevention Congress. If you're reading this from the meeting hotel, look for the DMCB and say hi. Better yet, give it your insights on any one of the sessions. Who knows, you may not only be quoted, but the other many co-workers or competitors that read this blog will be even more impressed with your expertise.


Aaron B. Hicks said...

Agreed, tax policy is a boring topic (I'm surprised you were able to even kept your eyes on CSPAN momentarily).

However, without extra funding and cost controls, any health care reform will be moot. The system just has very little long-term sustainability.

With that in mind, the employer-provided insurance tax benefit is a succulent fruit waiting for harvest. Yes, it will be difficult to account for regional differences in health care costs. But, no matter what the change, any new tax code will still be "more fair" than the current policy.

On the other hand, I'm glad that I don't actually have to get my hands dirty in reforming the tax policy. As was said earlier, tax reform is a yawner. Being an arm-chair quarterback has it's benefits, I suppose.

Anyway, I look forward to the DCMB's coverage of the Chronic Care and Prevention Congress. Keep up the good work.

Jaan Sidorov said...

Hey, there is something good to report: none of the persons appearing on C-SPAN were wearing spandex!

Thanks for the nice comments, Aaron.