Tuesday, January 23, 2007


The Tax Man Cometh to Health Care


According to "Bush Bids to Increase Focus on Health Care with Plan on Tax-Based Aid for Consumers" (Wall Street Journal, January 22, 2007), the White House intends to curb skyrocketing health care costs by seeking tax relief for some. Journalists John D. McKinnon and John Harwood write that independent buyers of health insurance would get a tax deduction, arguably a boon for the millions of persons who are self-employed or work for companies that do not provide insurance. In contrast, employer-provided health insurance benefits would constitute taxable income. Likely winners include an estimated 80% of employees for whom the average premium (for a family policy) is a reported $11,500. Executives, professionals and some "rank-and-file" union workers may not be so lucky.

In a related article, "UAW May Run Some Retiree Benefits" (Wall Street Journal, January 23, 2007), reporter Jeffrey McCracken describes a "potentially revolutionary plan" whereby the United Auto Workers could assume responsibility for a ten billion dollar plus liability. A critical question is whether big U.S. auto manufacturers can find the money to finance "a handover of future retiree health-care obligations to a union-managed fund." Beyond costs, McCracken posits that union leaders face a real dilemma. Accustomed to negotiating hard on behalf of their members, can or will they want to police members' health care activity as a way to control costs?

As stated here and elsewhere, health care has the potential to dwarf the pension issue in a serious way. (Click here to read our most recent post about health care economics.)

If employers decide they can't afford to offer insurance coverage in its current form, pensions may be curtailed even further as part of a serious look at employee benefits overall. This is not necessarily a good thing if companies and municipalities then find it difficult to attract and retain productive workers.

Add the questionable state of Medicare to the mix and the current situation looks bad. With the 2008 election frenzy already underway, we're sure to hear more about health care solutions. Generating a meaningful dialogue (no sound bites please) is good. Without radical surgery soon, we're in for a long recovery.

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posted by Susan Mangiero at 1/23/2007 05:30:00 PM