As I have continued to listen to the debate on health care reform, there is a continual mention of employer sponsored health care. A number of people believe that there should be mandate for employers to pay for every employees’ health benefits. That is because our system for most of our lives has been built around the idea that employers pay for our health benefits. The only reason this developed in the first place is because employers were able to create tax advantages for both the company and the employees by offering benefits. Employers could deduct health benefits as expenses, and employees could receive health benefits through their employer tax-free.
Employees always pay for any insurance in decreased salaries or compensation. Employers could pay an employee more if they did not have to offer benefits. The tax benefits just made it more economical for a person to buy health insurance through their company. The problem in the past is that the only insurance that could be offered through an employer, tax-free, was a group health plan. Group health plans provided great coverage only when you are working for the company. Once you are unable to work, the coverage stops. Your insurance is dependent on your employment
Over the last several years, new legislation has emerged to allow employees to take tax-free dollars to pay for individual policies. These individual policies are not only much cheaper for the majority of employees, they are also independent of employment. This legislation allows an employee to take advantage of the same tax benefits that existed only for group insurance in the past and apply them to individual coverage now.
Current legislation allows employees to purchase individual insurance tax free in two ways.
1. Employers can contribute tax-free dollars through a health reimbursement arrangement (HRA) to personal policies of the employees.
2. Employees can use section 125 to reduce their pre-tax salary and receive the reduction amount tax-free to pay for personal policy premiums.
I believe congress should be looking at ways of implementing their current laws better before trying to reform the whole system. There seems to be a great solution already on the books. Companies that have switched to individual policies are offering safer more affordable insurance to their employees by offering coverage that is independent of employment.