W's Health Plan Misses One Important Element:
Outlawing withholding of taxes
Sam T. Harper
January 2007
FRANKLIN COUNTY, Tn -- George Bush announced during his State of the Union address recently that he proposed to give all workers a deduction of $7500/$15000 (single/married) to help cover the cost of medical insurance premiums. To do this will, of course, require that businesses no longer be able to deduct premiums paid for employees.
No big deal there. Business would add the money it now spends on medical insurance premiums and pay it directly to employees as compensation. That increase would not be subject to federal income or payroll taxes. Thus business would deduct the additional compensation. That amount would be the same amount as the premium deduction. Employees would take the deduction for a medical premium instead.
The outcry from his opponents was classic: if it happens then "Big Business" will abandon medical insurance for its employees. Employees would be at the mercy of their employers. Once again!
Let's peal away the veneer of the complaint by the anti-W crowd and look at what his proposal actually does.
The cost of employees is 35-40% more than the salary paid to each employee.
A former employer of mine annually gave each employee a print out that described his check based compensation (salary and bonus) and the additional costs of all his benefits and concluded with a total compensation number for each employee. Each year it was the talk of the office after receiving the analysis. Most employees were stunned and pleased at how much they "really made."
W's proposes to empower workers to make their own medical insurance decisions.
Will employers then "abandon" their employees? Of course not. If an employer treats its employees like garbage, then the employees leave. So business will stay involved in medical insurance by being a "broker" between employees and providers.
I believe that employees, once they have to make their own decision, will demand a broader choice of medical insurance options than they currently receive that will better meet individual needs. If the employer refuses to provide the options, employees will go somewhere else.
The left's real complaint with W's proposal is that it empowers people to make their own medical insurance decisions. When they do make their own decisions, they will demand more choices, the market will respond, and this will only drive real costs down.
Having workers responsible for their own medical insurance is a good first step to making Americans truly empowered. The next step would be to stop withholding of taxes. Make workers write a check to pay taxes the same time they write their check for medical insurance.
That would open their eyes to the real costs of government.
