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How We Got Into This Mess During World War II workers demanded wage increases that were prohibited by wartime wage and price controls. To grant a concession to labor without violating wage and price controls, Congress exempted employer-sponsored health insurance from wage controls and income taxation—in effect allowing off-the-books raises for employees in the form of nontaxable health benefits. This created an enormous tax advantage for employer-sponsored health benefits over health insurance purchased by employees with after-tax dollars (e.g., auto insurance). By the mid-1960s employer-sponsored health benefits were almost universal. How We Are Getting Out of This Mess Individual/family health insurance has become cheaper and safer than traditional employer health insurance. When my employer-sponsored policy (described in the preface) was canceled, I purchased an individual/family health insurance policy directly from the Blue Cross Blue Shield carrier in my state. This policy not only saved my family more than $4,000 each year in annual premiums, but was also much safer than my previous employer policy. Other than normal cost-of-living increases, our premium could not be raised, nor could our policy canceled, because of job loss or a catastrophic illness. Health Savings Accounts are now available. The individual/family policy I bought qualified me to contribute up to $4,500 a year tax-free to a Health Savings Account (HSA) for preventative care and for future medical expenses. However, at that time very few people qualified for Health Savings Accounts (at that time they were called “Medical Savings Accounts”). In 2004, Congress made Health Savings Accounts (HSAs) available to all Americans with high-deductible employer-sponsored health insurance or their own high-deductible individual/family policy. Premiums for self-employeds are now tax-deductible. In 1999, when I purchased my individual/family policy, the annual premium was not fully tax-deductible even though I was self-employed. It seemed terribly unfair that health insurance premiums were 100 percent tax-deductible for businesses offering group health insurance, but not for self-employed individuals. But, beginning 2003, Congress authorized a 100 percent income tax deduction for health insurance premiums for self-employed people. New Health Reimbursement Arrangements (HRAs) are now available for individual/family health insurance. Prior to 2005, government and insurance regulations prohibited employers from reimbursing employees for individual/family premiums. But the IRS now allows Health Reimbursement Arrangements (HRAs) whereby employers can reimburse their employees tax-free for amounts spent on individual or family health insurance premiums. As you will learn in Part II, these types of changes mean that businesses can now get out of their health insurance nightmare while still enabling their employees to obtain high-quality health benefits.
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| ADDITIONAL RESOURCES FOR THE NEW HEALTH INSURANCE SOLUTION |
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