Taxing employed-sponsored health benefits, an idea getting a lot of attention as a way to help pay for the health-care overhaul, may lead to intended consequences, James Klein, president of the American Benefits Council and John Sweeney , president of the AFL-CIO, argue in a Washington Post op-ed today. The pair say that with such a tax, younger workers may opt-out of health plans, which could disrupt employer-sponsored group insurance plans. If exclusions to the tax aren’t indexed to inflation, the levy could end up taxing far more people than intended. And, they continue, for some health-related benefits like dental and vision coverage, the tax could effectively become more expensive if consumers must be buy them using after-tax dollars. There are a lot of myths

about who benefits from the current “tax-favored treatment” of employer-sponsored health plans, say Klein and Sweeny. One canard is thinking that those in higher-tax brackets benefit more from the current setup than lower-income employees. Instead, they say, low-income families who have employer-sponsored health insurance actually receive a bigger tax break as a percentage of income. “The employer-based health coverage system is crucial not only for the vital financial protection it accords most Americans but also for its role in improving health care,” write Klein and Sweeney. Companies in Klein’s group sponsor or administer health and retirement plans for more than 100 million Americans while the AFL-CIO has 11 million members.

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The Unintended Consequences of Taxing Health Benefits