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Employer health insurance is employee compensation

Employer-sponsored health insurance is a misnomer. Money that an employer putatively “contributes” to a company health insurance plan is simply employee compensation in another form.

The point is driven home in a recent column in the American Prospect by Paul Waldman about the U.S. Supreme Court decision in the Hobby Lobby case. Understanding that health insurance is part of an employee’s compensation package will be critical as Vermont moves forward with Green Mountain Care—now under the umbrella of Obamacare or later as a publicly funded, universal health care system.

Obamacare provides tax credits for many families and individuals that purchase health insurance on their own. A question for a lot of businesses and their employees is whether the overall cost and quality of health insurance would be better with a company plan or by dropping the company plan to allow individual employees to purchase insurance on their own and claim the tax credits.

While there are other tax consequences of making this change that complicate this decision, what shouldn’t be in doubt is that employers who drop the company insurance plan need to adjust their employees’ compensation accordingly. As Waldman reminds everyone in his American Prospect article:

“Your employer is basically acting as an administrative middleman between you and the insurance company. Your employer isn’t the one whose money is paying the premiums, you are. It’s compensation for the work you’ve done, just as much as your salary is.”

Posted by Jack Hoffman on July 16, 2014 at 10:59 am

2 Responses to “Employer health insurance is employee compensation”

  1. Paul Dame says:

    Unfortunately the federal tax code has created this odd marriage between health insurance and employment. The reason so many employers offer coverage is because it benefits the employer AND the employee by paying comp as premium, since those payments are not subject to income tax. If the employer were to pay those as wages directly, the employee would end up with LESS total compensation after taxes.

    We need to eliminate the tax deduction we give to corporations for health insurance, and instead give that deduction to individual tax payers. That is the simplest, fairest way to break up this “odd couple”

  2. Eileen Boland says:

    Paul Dame’s point in not an insignificant one. Also under present tax code when employees pay their premium share through payroll, it is deducted pre-tax. Employers always focus on total compensation (salary plus benefits), however, employees’ focus is often just on salary. Options for resources that presently go to health plan premium might might also be directed to hiring more employees, professional development, education assistance, on-site or assistance with childcare, etc.

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