As tents are folded (at least temporarily) around the collapse of the Republican circus to repeal and replace Obamacare, let’s hope voters remember what they learned about the Republican Party.
Versions of the House bill before the Senate, and the original Senate bill quarterbacked by Majority Leader Mitch McConnell, differed at the margins. But the central bipolar Republican debate in both houses was over how mean-spirited to be toward the poor and near-poor, and how generous to be toward the richest among us.
These bills provided enormous tax savings for people at the top of the income pyramid. But let’s focus here on the flip side: Both bills substantially curtailed Medicaid (and other benefits) for millions of children and a large number of seniors in nursing homes, among others. The Republican argument: Our nation cannot afford these entitlements — particularly in light of those (essential) tax cuts for the wealthy.
Little noticed in the debate, yet revealing of the leadership’s values, was their tolerance for an unseemly health care entitlement for highly-compensated employees: the right to exclude from income the most luxurious health insurance premiums paid by their employers.
Here’s the story. Employers appropriately deduct as a business expense the premiums they pay for employees’ health insurance. Then comes the tax break: Every employee is exempt from income and payroll taxes on the premiums, even when the best policies are provided solely for top management.
The unlimited tax break for employer-paid health insurance is, like Medicaid, an “entitlement” — defined by Merriam-Webster as “a government program providing benefits to a specified group.” But unlike Medicaid, this entitlement does not require proof of “need.” To the contrary, it guarantees the greatest tax savings for the most generous policies for key employees who could easily afford to buy any policy they want without government help. As Holman Jenkins Jr., an editor of The Wall Street Journal, put it, this tax break perversely treats “the richest taxpayers as the neediest.”
It also happens to cover all members of Congress.
Consider the hypothetical cases of Julia, a receptionist, and Henrietta, the CEO, both employed by ABC Inc. ABC provides Julia a standard $16,000 family group health insurance policy. The premium ordinarily would be treated as a form of salary, on which she would pay $2,400 at the 15 percent tax rate (the top income tax rate paid by most taxpayers). But the tax exemption saves her that $2,400.
On the other hand, Henrietta is among the top 1 percent of income earners–that’s someone who earns over $500,000 annually. For her, ABC pays a $40,000 premium for the most comprehensive family group policy with few co-pays or deductibles. Without the special exemption, the $40,000 would count as salary and taxed at the top 39.6 percent federal income tax rate, for a tax of about $16,000. You get it: This CEO is a double winner. She gets the best policy and saves nearly seven times as much in income taxes —$16,000 vs. $2,400 — as a receptionist who is provided only a basic policy. And this outcome can be expected year after year. Who thinks that’s right?
Moreover, this upside-down entitlement doesn’t make economic sense. As noted by The Advisory Panel on Tax Reform in 2005, the tax break “for higher income taxpayers may raise premiums for lower-income people, thereby increasing the number of uninsured Americans … Ultimately, the tax treatment worsens disparities in insurance coverage, in use of care, and potentially in health outcomes.” In case you’re wondering, that tax panel was appointed by George W. Bush.
In fact, the Affordable Care Act imposed a substantial tax, as of 2018, on what it called “Cadillac” health insurance policies — policies that cost over $10,200 for individual coverage and $27,500 for family coverage. Even though these limits were (and remain) far above the cost of most basic policies, Congress subsequently postponed the tax to 2020. But Senator McConnell’s original bill avoids that tax until 2026 — effectively, forever.
If you’re an optimist, you might hope that, in the coming weeks, Republicans and Democrats would work together at least to shore up the fragile federal health-care exchange. But the ugliness of the debate we have witnessed reminds us of a fundamental question: Why does the United States remain the only developed country in the world that refuses to recognize universal health care as a basic right for all our people?
Nonetheless, I cannot resist this question (among many others) for Senator McConnell: If you really believe it’s in our national interest to eliminate millions of struggling Americans from Medicaid coverage, why should Congress continue to subsidize Cadillac policies next year, let alone until 2026, for Americans who could buy these policies struggle-free?
John O. Fox, of Amherst, is a writer and former tax lawyer in Washington, D.C., and visiting professor at Mount Holyoke College where he taught an undergraduate seminar on the social and economic outcomes of U.S. tax laws.