WASHINGTON, D.C. – A report released today has found that health reform proposals taxing employer-sponsored benefits are detrimental to dependent children covered through family plans. The report finds that this is true even if those proposals only cap, rather than eliminate, the tax exclusion that currently exists. The study confirms that proposals currently being discussed do not accurately reflect the relative prices of single and family plans, resulting in those with family plans seeing a higher share of their premiums taxed than their single counterparts.
In addition to higher out of pocket costs for family plans, several other negative outcomes exist for families. The breakup of family insurance arrangements, reductions in the quality of insurance offered to families, and cutbacks in benefits covered for children are among the problems the report uncovers.
Currently, the debate over taxation/exclusion of health care costs is hotly contested in the health reform arena, with labor, business groups, and health reform advocates debating the merits of capping or eliminating the tax exclusion. The new report, released today by First Focus and the Economic Policy Institute (EPI) brings a new and largely overlooked perspective to the debate – the impact on family and children’s coverage. The report was authored by Elise Gould, Director of Health Policy Research at EPI.
Gould explains that the average cost of premiums for a family plan is 2.7 times higher than premiums for single adults. However the caps, deductions, and credits proposed recently do not completely account for this ratio, disproportionately affecting family plans over single plans. In an analysis of a 2005 proposal capping the income and payroll tax exclusion for employer and employee contributions to health insurance premiums at 2.3 times that of individual coverage, Gould finds that family plan enrollees are over 70 percent more likely to be directly affected than single plans. According to Kaiser/Health Research and Educational Trust Employer Health Benefits Survey, out-of-pocket costs in employer coverage is already 4.7 times greater for families than for individuals.
“Over the past several weeks, we have heard perspectives from many interested parties on the pros and cons of taxing health benefits, and how we should approach such an issue. Today a new voice – that of our children – is being heard, and the impact of reform proposals on their well-being should be given particular attention,” said Bruce Lesley, President of First Focus, the bipartisan children’s advocacy organization that commissioned the report. “Employers already subsidize a smaller share of family coverage than for individuals, resulting in lower rates of private coverage for children than adults. Virtually every proposal we have seen would cap the tax exclusion, which would further incentivize the private sector to reduce dependent coverage. Children and families should not be adversely affected by health reform. Instead, Congress should enact legislation that helps children and families rather than leaving our young people worse off than they are today.”
“In a climate of substantial budget deficits and scrambling to find money to fund health reform, the prospect of taxing health benefits is enticing,” said Elise Gould, author of the report. “But lawmakers must proceed with caution before moving to cap or eliminate this tax exclusion. In trying to pay for coverage expansions, taxing health care benefits shouldn’t be the first place we look, but rather the last, and only after large-scale health reform is in place to cover everyone, including those who may lose access to employer-sponsored insurance as a result of such a tax change. Indeed, assurances must be made to not harm children’s chances of securing or maintaining quality, affordable coverage. Not until a secure, safety-net system is in place to cover everyone should changes to the tax exclusion be considered. And, even then, care should be made to equally protect children and families from being disproportionately burdened.”
Gould concludes that capping the exclusion may result in employers rolling back benefits for dependent children, in order to correspond with the cost of the deduction and to avoid payroll taxes. Gould indicates that this will also result in the fragmenting of family insurance arrangements, as spouses and children will be forced to enroll in separate coverage to avert paying for premiums above the deduction or cap amount. Alternatively, employers may decide to drop dependent coverage entirely.
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Click here to download a copy of the report