Sep 27, 2011 8:12 PM GMT
A plan that makes a lot of sense - shifting the onus of buying healthcare away from companies and managers and instead putting the onus of responsibility on individuals.
In the Stanford speech, Ryan states: "Under current law, employer-sponsored insurance plans are entirely exempt from taxation, regardless of how much an individual contributes to their policy. With regard for health insurance for working Americans, patient-centered reform means replacing the inefficient treatment of employer-provided care."
Ryan argues that the tax laws make it far cheaper for a corporation to purchase coverage for workers than for the worker to buy a similar policy on their own. He's correct. For example, ABK Auto Parts (a hypothetical employer) can provide a worker with a $50,000 salary with a $15,000 family policy without including that $15,000 in the worker's compensation, so the benefit is tax-free to the employee. Under the current tax regime, if the company simply increased the worker's salary by $15,000 to $65,000, he or she would have to pay tax on that extra income -- say at a 25% rate, including payroll levies. Hence, the worker would be to buy only an $11,250 policy with the extra pay. "This tilts the compensation scale toward benefits, which are tax-free, and away from wages, which are taxable," the speech says.
He also argues that the system is especially helpful to the "rich:" "It also provides ways for high-income earners to artificially reduce their tax-able income by purchasing high-cost health coverage -- which in turn can fuel the overuse of health services."
So what's Ryan's solution? He proposes shifting the tax exemption that now goes only to company-provided plans to individuals instead. In our example, if ABK Auto Parts keeps providing coverage, employees will need to pay tax on the value of the policies. But the employee will be able to buy a policy on their own and get a tax credit for the entire cost of the plan.
If Ryan's plan becomes law, it's likely that most companies would drop their plans. Why provide coverage when employees now pay tax on the benefit but get a tax credit if they buy their own plans? The advantage is that employees would no longer lose their coverage if they lose their jobs. The policies would belong to them and be fully portable to the next job. It would also turn workers into consumers, giving them an incentive to shop for the lowest cost plans with their own money.