One of the most important health care reforms would be to get rid an inefficient, outdated tax exemption that is still a fundamental part of U.S. policy.
This is how it works. If a company provides health insurance to its employees, the federal government does not tax the health benefits that are being provided. Say you have an insurance policy worth $5,000. Said company deducts a part of the employee’s salary – say, $1,000 – for “health insurance.” But the majority of the cost – the other $4,000 – is hidden, because the company negotiates with health providers itself. This is an enormous tax exemption, amounting to the biggest the federal government gives.
On the surface, it sounds like a good idea. Who wouldn’t want to encourage a companies to provide health insurance?
The problem lies in the unintended consequences of this tax exemption.
More below.