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Capping Tax-Deductible Employer Health Coverage a Bad Idea, Says Fraker

02/26/17

  09:32:00 pm, by MedBen5   , 313 words,  
Categories: News, Health Care Reform, Taxes, Compliance

Capping Tax-Deductible Employer Health Coverage a Bad Idea, Says Fraker

Caroline Fraker

Earlier this month, House Republican leaders released an outline of their plan to replace the Affordable Care Act (ACA). The outline doesn't indicate how the plan would be paid for, but one frequently cited GOP funding suggestion ‒ capping the tax deductibility of employer-sponsored group health coverage ‒ could have serious ramifications for employer-funded health plans, says MedBen Vice President of Compliance Caroline Fraker.

Employers provide non-taxable health care coverage through insurance and self-funded plans to the nearly 60% of non-retired Americans who receive coverage through their workplace. Because the benefits provided by employer-sponsored group health coverage is not considered income to employees – and neither employees nor employers pay payroll tax on those benefits – some Republicans see it as an unfair advantage over those who have to purchase health coverage on an individual basis, which is bought with after-tax dollars. "GOP members of Congress think a cap has to be put in place to balance the playing field for those getting health coverage outside of the employment arena," Fraker said.

The logic behind the cap is similar to the ACA's much-reviled (and never implemented) Cadillac tax ‒ to collect funds for other health care reform initiatives. Fraker believes a better solution would be to focus on making corrections to the individual insurance market, such as applying universal health care tax credits to people who purchase their own coverage. "If the GOP believes there's inequity, it's smarter to balance it on the non-employer, individual market side," she said.

Fraker added that that the cap goes beyond simple tax implications to the issue of job retention: "If you take away the tools employers use to attract and retain good employees, all you ultimately do is undermine the economy."

MedBen clients who have questions about the proposed cap or health care reform in general are welcome to contact Fraker at 800-851-0907 or cfraker@medben.com.

Get additional perspective on this topic at BenefitsPRO.

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