Taxing health benefits could be used to pay for expanded coverage, drive out unnecessary care, some say

Economists say taxing health benefits not only could raise billions per year for health care reform efforts, but also could make the system run better, NPR and KHN report.

The reasoning: "When you tax an activity, you get less of it. When you subsidize an activity, you get more. 'We're subsidizing health insurance,' said Katherine Baicker, an economist at Harvard's School of Public Health. 'So we're getting more and more and more health care consumed.'" Discounts skew decision making, NPR reports, and getting rid of the tax breaks for employer-provided health benefits could help rein in unnecessary treatments while boosting enrollment.

"'Some estimates suggest 30 percent of health care dollars are going to care that does very little to promote health,' Baicker said. 'Meanwhile, uninsured people don't have access to care that would very much improve their health.'" But union leaders are fighting hard to keep the tax break they say they've won for their workers over years of hard negotiation and that taxing the benefits could provide a political torpedo to those seeking to derail reform. "Supporters say any tax could be limited to affect only the most generous insurance policies and perhaps only wealthier workers. Such a limited tax could still raise significant revenue to expand health care and could still make the system more efficient. In the coming weeks, though, as plans are debated on Capitol Hill, what's efficient is likely to take a back seat to what's politically doable" (Horsley, 6/8).

Lawmakers are considering varied approaches to taxing employer-provided health insurance as a means of paying for an overhaul of the health system, Kaiser Health News reports: "Currently, workers who get health insurance from their employers don't pay income or payroll taxes on the cost of the policy. Self-employed people can deduct the cost of their insurance premiums. But workers who buy their own policies because they don’t get coverage through their jobs generally don’t get the tax break. Ideas for changing current policies fall into three broad categories: Taxing health benefits above a certain dollar amount, taxing only wealthier people or replacing the tax break with a tax credit" (Appleby, 6/8).