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January 2006
It's Time to Give Healthcare Tax Credits to Individuals as Well as Employers!
By John Paul Galles

     Nearly 46 million Americans have no health insurance and that number is expected to climb to 53.7 million by the end of 2006, as the percentage of all employers offering healthcare coverage to their employees continues to decrease, down already from 69 percent five years ago to 60 percent this year. Of those uninsured, nearly 60 percent are employed by small businesses that cannot afford healthcare coverage for their employees.

     Out of nearly 300 million Americans, about 159 million are covered through their employment and another 76 million are covered by the government.  Nearly 17 million Americans purchase their own individual or family coverage.

     The cost of healthcare itself has continued to rise. Employers’ average annual premium for single coverage in 2004 was $3,695.  It is expected that healthcare premiums will rise to an average of more than $14,565 for family coverage by the end of 2006, more than double the average family premium of $7,053 in 2001.  Total annual spending on health care now exceeds $1.7 trillion.

     In recent years, we have witnessed an increasing number of business failures precipitated by the burden of healthcare expenses that must be managed, not only for their current workforce, but also for their retired workers. American companies are being crippled by these costs, both because they have set aside inadequate reserves to handle them (reserves were based on significantly shorter life expectancies), and because the cost of healthcare tests, procedures and medications has significantly risen as well.

     Ever since World War II when health care was offered as an incentive during wage freezes, American workers have become increasingly dependent upon employer-provided healthcare coverage. Tax deductions have been provided to employers for providing health care to their employees as a tax advantage for over 50 years. Efforts to impose mandates on all employers to provide coverage failed along with the complexities of the healthcare plan developed under the Clinton administration in 1994. Since defeat of that reform package, lawmakers have been reluctant to do more than mandate minimal changes to deliver more coverage to youth and the elderly.

     Healthcare for larger enterprises is governed primarily by ERISA (Employee Retirement Income Security) rules established by the federal government. Health care for smaller businesses is generally governed by insurance laws established by state governments and administered by insurance commissioners within states. Health care for the elderly is delivered by federal Medicare statutes. Health care for the poor and indigent is delivered by Medicaid regulated by states.

     The current tax code creates a significant tax advantage for employers providing coverage by exempting the total value of the benefit from a worker’s taxable income. With an unlimited tax credit for employers, wealthier companies can provide huge health care benefits at the expense of others who cannot afford any coverage. That is not fair.

     The only real way to expand coverage to more people is to revise the tax code so that employers and individuals alike receive tax credits for healthcare premiums for coverage on a truly basic and uniform benefit package up to a maximum premium level. By applying equal tax credits to employers and individuals, we will end the unfair and unequal delivery of healthcare coverage and offer all workers the chance to participate in the healthcare system at a more reasonable cost spread over more workers. Those who choose more substantial coverage can pay for that extra coverage with after-tax income.

     Our health care system was never intended to be a health expense reimbursement mechanism. It should be returned to its important role as a financial backstop. At the same time, given the tremendous advances in the amount of tests, procedures, and medications available, individuals must also play a larger and more active role as consumers making appropriate healthcare purchasing decisions throughout their lives.

John Paul Galles is the publisher of Greater Charlotte Biz.
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