Patient-Centered Tax Reforms:

The Problem

Currently, employers pay for employee health insurance with pre-tax dollars—dollars as counted before state and federal taxes are taken away. Individuals pay for insurance with a post-tax dollar—whatever money is left after taxes are deducted.

Depending on the amount of state and income tax, individuals may only keep 50 to 80 cents of each dollar earned. This makes it far more expensive for individuals to purchase private insurance. The result? If someone does not get insurance as a work related benefit it is unlikely they will purchase health insurance on their own.

The Solutions

Solution #1:
Let Individuals Purchase Insurance with Pre-Tax Dollars

Letting individuals purchase health insurance with pre-tax dollars will:

      1) Make health insurance far more affordable for individuals.
      2) Encourage individuals to shop for the insurance policy the best meets their needs.
      3) Increase portability when individuals change jobs.

Solution #2:
Expand Pre-Tax HSA’s and Link them to Retirement Accounts

One challenge of healthcare reform is the problem of the “young invincibles.” These young, healthy Americans are at low risk for significant disease. Given the high cost of insurance, they elect to go uncovered rather then spend several thousand dollars each year on an insurance plan they feel they are unlikely to use.

Unfortunately, whether from devastating disease or an accident, a portion of these individuals will face significant healthcare needs. This shifts tens to hundreds of thousands of dollars of medical expenses from one uninsured individual to those who purchased insurance.

The Patient Protection and Affordable Care Act deals with this problem by everyone to purchase insurance through the Individual Mandate. An alternative solution is to create a compelling reason why it is in their best interest to purchase insurance.

According to the 2010 U.S. Census 49.9 million people did not have health insurance. Of these 8.8 million (17 percent) had annual incomes of more than $50,000, and an additional 9.5 million (19 percent) had incomes or more that $75,000.*

If the HSA contribution limit was expanded to $10,000 annually, and patients could move half of any unused HSA money to an IRA, this would significantly expand how quickly individuals could save for retirement. When combined with other reforms that will decrease the cost of health insurance, these measures would encourage nearly 20% of those presently uninsured to purchase insurance.