End of Tax Free Employer Provided Group Health

As mentioned in a previous blog, the President created an Advisory Panel on Federal Tax Reform in January 2005. They were given a lofty mandate: To make the Tax Code Simpler and Fairer and more Conducive to Economic Growth while keeping tax revenues neutral. On November 1st they released - on time - their long awaited final report (272 pages).

I will not attempt to comment or pass judgment on the report in general, other than to say that it´s goal is a desirable one and probably no one would argue against the need to fix the tangled broken web of code. And whenever you try and fix such a tangled mess, there will inevitably be winners and losers.

But what this writer wants to comment on is the recommended change on the health front from the current environment which: "Grants tax free status to an unlimited amount of premiums paid by Employers, Employees or Self-Employed" to one where: "All taxpayers may purchase health insurance with pre-tax dollars up to the amount of average premiums estimated to be $5,000 individuals and $11,500 for family coverage."

At a time where many corporations are desperately looking for ways to cut health costs, or at least contain them, putting the additional burden of taxing health benefits (albeit above a cap) on them and their employees, may lead to many employees dropping their coverage or demanding higher wages to offset the additional tax. In addition, the powers to be could lower or even eliminate the cap over time.

To fix the tangled web of tax code is a desirable goal, but not at the expense of seriously hurting our already hurting health care system.