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Four Proposed Tax Changes for Health Insurance. Bob Lyke December 5, 2008. Four Proposed Tax Changes. End tax exclusion for employer-provided coverage Allow individuals a full deduction for premiums Allow individuals a tax credit for premiums

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four proposed tax changes
Four Proposed Tax Changes
  • End tax exclusion for employer-provided coverage
  • Allow individuals a full deduction for premiums
  • Allow individuals a tax credit for premiums
  • Allow employers a tax credit for providing coverage
some preliminary cautions
Some Preliminary Cautions
  • Generic approaches can have many variations
  • Small differences in specifications can have big effects
  • Complexity makes determining specifications difficult
sources of complexity
Sources of Complexity
  • Identifying multiple objectives
  • Weighing conflicting objectives
  • Determining likely range of premiums
ending tax exclusion for employer provided coverage 1
Ending Tax Exclusion for Employer-Provided Coverage (1)
  • Possible Gains

--- savings could be used to finance

health care reform

--- could end open-ended subsidy

--- could hold down growth in

health care expenditures

--- could reduce tax savings for

higher-income families

ending tax exclusion for employer provided coverage 2
Ending Tax Exclusion for Employer-Provided Coverage (2)
  • Possible Problems:

--- may undermine employment-

based insurance

--- may be difficult to determine how

much additional income is fairly

assigned workers

--- the replacement tax benefit (e.g., a tax credit) may be much more

complex

ending tax exclusion for employer provided coverage 3
Ending Tax Exclusion for Employer-Provided Coverage (3)
  • An alternative: cap the exclusion for overly generous coverage
  • Possible Additional Gain:

--- less disruptive to current system

  • Possible Additional Problem:

--- determining what is “overly

generous” coverage

full deduction for premiums 1
Full Deduction for Premiums (1)
  • Possible Gains:

--- would be more equitable for

people who buy individual

market insurance

--- could be relatively simple

full deduction for premiums 2
Full Deduction for Premiums (2)
  • Possible Problems:

--- would not do much to reduce

numbers of uninsured

--- may undermine employment-

based coverage

full deduction for premiums 3
Full Deduction for Premiums (3)
  • An alternative: allow a fixed “standard deduction” for health insurance
  • Possible Additional Gain:

--- would limit purchase of overly

generous coverage

  • Possible Additional Problem:

--- may encourage people to

purchase inadequate coverage

tax credit for individuals 1
Tax Credit for Individuals (1)
  • Usual proposals: refundable and advanceable
  • Possible Gains:

--- could fine-tune subsidies according to

family income

--- could balance competing

cost and coverage objectives

--- for many, could be simpler

than program subsidies

administered by states

--- could be easy to modify

tax credit for individuals 2
Tax Credit for Individuals (2)
  • Possible Problems:

--- a flat credit (fixed percentage or

amount) may not be adequate

for low income families or

be needed by high income

--- an income-adjusted credit (with a

phase-out) adds complexity

--- can be difficult to integrate with

employer-provided coverage

--- could be difficult to target on

the uninsured

employer tax credit 1
Employer Tax Credit (1)
  • Usual proposals: for small businesses with low-wage workers
  • Possible Gains:

--- could focus subsidies where many

need them

--- would involve fewer taxpayers

than an individual credit

--- could help maintain and expand

employment-based coverage

employer tax credit 2
Employer Tax Credit (2)
  • Possible Problems:

--- low-wage workers might not

be in low income families

--- might be unfair to large employers

with low-wage workers

--- could be complicated to

administer for some firms

some concluding points
Some Concluding Points
  • Tax provisions are tools

--- choose the tool after

deciding the objectives

  • New tax benefits involve costs

--- someone will have to pay

  • Consider alternatives

--- expanding public programs

--- increasing personal expenditures

slide17
I can’t make a … thing out of this tax problem. I listen to one side and they seem right – and then I talk to the other side and they seem just as right, and here I am where I started.

… What a job [I have]!

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