"Crisis" article in "The Actuary"

[Dr T Non-Fan]

http://www.soa.org/ccm/content/about...althcare-cost/
I read this last night. Found it interesting, as I think pretty much the same way, that there isn't a "crisis." It's an issue for some (who cannot afford health care nor health insurance) and not for others (who work for companies that pay for the costs of health care).

And, no matter where this discussion goes, I will not be deleting the contents of this post.

[yankeetripper]

Our employer-based system permits an employer to record the cost of health insurance premiums (or self funded health claims) as a normal business expense. In a for-profit world with 35 percent tax, that becomes 65 cents of employer (ER) cost on the dollar of employee (EE) benefit; furthermore, it is not a taxable benefit to the EE and his or her covered dependents. This simple fact about the taxability of commercial group coverage is fundamental to understanding how and why ER-based health insurance has evolved into what it is today. Methods exist that allow an employee to pay some medicalcost on a before-tax basis, but most out-of-pocket cost is paid with after-tax dollars in the United States

As someone not in the health field, my perspective is this is a double edged sword and cut close to the heart of the healthcare question in the USA.

People who are covered by employer health benefits and can pay the employee portion on a pre-tax basis, love this. (I suspect many on this board myself include fall into this category.) Esepcially if you are covered by a good group health plan.

However, IMO this also very unfair to those not covered by employer health plans. Generally if they have health insurance, it is an individual policy which is generally the most expensive to begin with and on top of that the premiums are seldom tax deductible if I understand that portion of the tax code correctly.

For example, on the last sentence in quote, is it fair that I get essentially 40% off of most healthcare expenses simply because our company has §125 plan plan? Your typical part-time worker does not have access to this type of plan. Sorry if this going off on a tangent.

[JMO]

However, IMO this also very unfair to those not covered by employer health plans. Generally if they have health insurance, it is an individual policy which is generally the most expensive to begin with and on top of that the premiums are seldom tax deductible if I understand that portion of the tax code correctly.

You are right. There is limited deductibility of individual health insurance premiums, along with health care expenses paid out-of-pocket, but this deduction only comes about if (a) the person itemizes deductions and (b) the expenses exceed a certain % of taxable gross income. (I forget whether it's 5% or 7% or some other number.)
Definitely unfair. And the amounts billed to uninsured people by the health care providers are totally out of line with what those same providers bill the insurance companies.

[Dr T Non-Fan]

For more fairness, I'd like to see employees taxed for health benefits above and beyond some basic insurance amount, not unlike how life insurance is done (I think). Of course, that just means higher wages in some industries to compensate for the higher taxes.

[HangerAngler]

Couldn't an individual who isn't covered by a group plan start their own company through which they buy insurance and hence make it a tax-deductible expense? Yes, there are costs [that vary by state] for creating a legal entity like that, but being able to save the marginal tax rate off the premium would clobber that cost in less than 2 years.

[JMO Fan]

Originally Posted by HangerAngler

Couldn't an individual who isn't covered by a group plan start their own company through which they buy insurance and hence make it a tax-deductible expense? Yes, there are costs [that vary by state] for creating a legal entity like that, but being able to save the marginal tax rate off the premium would clobber that cost in less than 2 years.

This works if 1-life groups qualify -- which in some states are guaranteed issue. Deducting individual plan premium might be hard to defend. Sad, because individual health insurance premiums used to be fully deductible.

Generally speaking, basic individual major med coverage is unaffordable for those making <$60k; families need household income >$100k.

[yankeetripper]

Originally Posted by HangerAngler

Couldn't an individual who isn't covered by a group plan start their own company through which they buy insurance and hence make it a tax-deductible expense?

Genrally speaking, no.

[HangerAngler]

Originally Posted by yankeetripper

Genrally speaking, no.

Why not? I didn't specify that they purchase a group plan, just that they purchase insurance.

[T-roy Boy]

I recall that you cannot start a business just to purchase health insurance, it has to show money comming in.

[Take 2]

In VT, I had no money yet, just started consulting, no 1099, no pay guaranteed. VT law guaranteed issue to 1-life groups, so I got coverage. Not many co's have resources to check income.

Buying individual plan (instead of group), claiming deduction for business, might work if not audited, might be defensible w/income, but risky.