
                         Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: WEDNESDAY, June 29, 1994                   TAG: 9406290097
SECTION: EDITORIAL                    PAGE: A-11   EDITION: METRO 
SOURCE: By GWEN THAYER HANDELMAN
DATELINE:                                 LENGTH: Medium

TAXING HEALTH BENEFITS WOULD HURT THOSE IN NEED

A TAX on employer-paid health benefits seems like a magic bullet that will simultaneously raise revenue for health reform and contain costs. It is a feature of virtually every model of health reform except single-payer. Employees, employers, or both, would pay tax on employer-paid insurance beyond a basic package of benefits.

The theory is that huge tax increases on Americans currently insured would dramatically change individuals' and families' use of health services: Taxing "excess" coverage would force employers and employees to shop for more "efficient" health plans. Over time, the movement of workers into low-cost, low-coverage health plans is meant to slow national health-care spending.

In fact, studies - and common sense - show that taxing benefits would have little effect on national health spending because medical need does not just go away.

And taxing benefits is a uniquely inequitable way to finance health reform. A tax on "supplemental" health benefits falls most heavily on those most in need.

Economists agree that employees will end up paying whether the tax is on employees or employers. Workers would be hit by some combination of higher taxes, lower wages and reduced coverage. Taxing the costs of health treatments not covered by the standard package ends up as an added cost of health care for those with greater medical need. Raising the cost of care will have the heaviest impact on those who are older, most ill and least able to afford it.

Many in Congress have come to appreciate that individuals ought to be allowed a tax deduction for coverage paid for on their own. But most still would tax individuals who buy their own insurance on coverage beyond the standard package. Under any version of health reform - employer mandates, individual mandates or an optional system - taxing benefits above the standard would pressure employers and individuals to reduce coverage to the low-cost standard plan.

For those who have medical needs greater than the standard coverage, this would be a triple hit: They would have to pay out of pocket for coverage beyond the minimum; the cost of that supplemental coverage would increase because of adverse selection (only those with high medical risk would buy it); and they would have to pay a tax on needing medical care beyond the "standard."

People should not have to pay taxes on the cost of needed care, whether employer-paid or paid on their own, like it was money they had available to do with as they please. It is unfair to tax individuals on expenditures they cannot actually control but must make out of medical necessity. A person with huge medical expenses is not in the same circumstances as someone without those expenses. For example, a Florida family of five had about $20,000 in medical expenses last year over and above what insurance paid (and most health-reform proposals would pay). That family has that much less to support themselves.

The severity of the impact of taxing "supplemental" health coverage depends on how low the standard coverage would be. The idea is to limit use of health-care services to "appropriate" levels. But "appropriate" has been equated with short-term low cost rather than the medical services necessary to a person's productivity or even life.

Manipulation of tax consequences is intended as a way to "discipline" demand for treatment of less serious conditions. But adding to the cost discourages seeking care for serious as well as minor conditions and reduces the number of households receiving medical care. In other words, those who can afford to pay, do. Those who can't afford to pay either don't get care at all, or the high cost of belated care is shifted to others. I thought this was the problem we were trying to address through health reform, not the solution.

Realistically, Congress does not seem ready to guarantee everyone the treatment, medication, equipment and services that they need. For now, then, we must examine separately the issues of what types of coverage Congress is prepared to include in a universal plan and what types of care should be taxed when an employer pays for it or patients pay on their own. The more limited the scope of coverage under the standard package, the more unfair it is to make people who have needs that are not covered pay a tax penalty. A tax on "supplemental" benefits amounts to a penalty on medical need unless all needed health-related services are covered in the standard package.

Gwen Thayer Handelman, associate professor of law at Washington and Lee University, spoke at the President's Committee on Employment of People With Disabilities Health-Care Symposium recently in Atlanta. This is taken from her remarks.

by CNB