Im trying to understand this

Thursday, June 28, 2007

Bush Tries to Resuscitate Health Insurance Tax Plan

Under current law, workers who get health insurance through their jobs do not pay taxes on the value of the insurance, which encourages employers to offer insurance as part of their benefit packages.

So, why does this encourage employers to offer insurance?  Clearly this encourages employees to want insurance through their employer in order to get the tax break.  And, obviously, this is a benefit to the employee, which makes the employer more attractive.  But the employee still benefits from the health insurance whether or not they are taxed on it.  I’m just not seeing the extra benefit for the employer beyond being able to offer a slightly better deal to employees.

Anyway, more importantly, what effect would Bush’s proposal have on this?

The Bush plan, unveiled in January, would substitute that tax break with a standard deduction that would go to any taxpayer with insurance.

Bush has recently said that “he might be satisfied with replacing the existing tax break with a tax credit, rather than a tax deduction.”

So, let’s say we stop offering a tax break (And by that I include credit and deduction and whatever else) on only employer-provided insurance.  Assuming that current practice actually does encourage employers to offer insurance, will changing the law discourage it?  It seems like an important point that the article suggests but doesn’t address.  And I can’t address it myself without seeing how it encourages employers to offer insurance in the first place.

Can anyone explain this to me?

Posted in: health , Politics