Question

Explain why employer-purchased health insurance results in more comprehensive health care coverage. What are some of the arguments in favor of eliminating or placing a cap on the tax-exempt status of employer purchased health insurance?

Answer 1

Human health is unpredictable. A single serious health condition can take a toll on the savings of the people. In order to safeguard your finances against high medical bills, it is necessary to invest in health insurance plans. Such plans cover all hospitalization expenses, as well as pre-hospitalization and post-hospitalization charges. One would notice that there has been a significant rise in the number of insurance policies purchased. However, the most of the credit to this rapid growth goes to the employment-based insurance policies and there are number of reasons for that.

As they say, buying in bulk sometimes gets you discount. So the insurance policies of all the employees purchased together i.e, group health insurance plans are available at low or no cost to the employees. At times, the individual policies may be denied to the individuals due to some reasons. But with group insurance packages, every individual who is employee of the company is automatically granted approval for the insurance package. The most basic reason for employer-purchased health insurance resulting in more comprehensive health care coverage is that a person as an individual usually do not take initiative to buy insurance policies on his own but when insurance policies are available through employer side without any extra effort, most probably they would not deny.

Another benefit with the employer purchased health insurance is that when those same workers receive contributions to health coverage from their employers, they don't have to pay federal taxes on those sums. This is known as tax exclusion. Whereas when workers are paid wages or salaries by their employers, they have to pay federal income taxes on that money. However, this issue has always been a topic of debate among people. Observers have different views regarding eliminating or placing a cap on the tax-exempt status of employer purchased health insurance. People who are in favor of this argument say that the tax exclusion doesn't help people who do not get coverage through their job. Infact, it may encourage people to opt for more health insurance over higher wages, and may indirectly be driving up the cost of both health coverage and health care. Moreover, the tax exemption doesn’t apply to people those employees who for other reasons purchase health insurance on their own.

The tax-exemption is beneficial but more to the highest income people while the lowest-income individuals get the least benefit. The value of the exclusion also in effect rises with income because workers in higher tax brackets are more likely than lower-income workers to have coverage through their employers.

The people who support the capping of tax exclusion also argue that doing so would in effect lower the subsidy and encourage employers and employees to be more cost-conscious when buying health insurance.