Former Secretary of State Henry Kissinger was fond of reminding critics that “America has no permanent friends or enemies, only interests.” Many years ago, I remember Kissinger on a Sunday morning news show paraphrasing himself and applying the same “no friends, only interests” maxim to domestic politics.
Prior to the Iowa caucuses, I interviewed Jessica Waltman of Forward Health Consulting on the ShiftShapers Podcast (Episode 95).
In that interview, Waltman reviewed the health care positions of those vying for president. Waltman explained many benefits professionals might be surprised to learn the only candidate (at the time) not proposing a weakened or repealed tax exclusion for employer-sponsored health insurance (ESI) was Hillary Clinton.
Since then, of course, Clinton has pivoted to the left and is talking about the so-called “public option” of which leads, inexorably, to the Democrats’ expressed goal of a single payer arrangement. But I digress.
Since the end of WWII, the exclusion has proven useful to employers in their quest to attract and retain employees. It has also served as a kind of de facto pooling mechanism for markets. Yet, in an entitlement-bloated, debt-encumbered budget, the amount of money the government “loses” on this tax incentive is proving too tasty a target to ignore. In 2015, the value of the exclusion was estimated at $250 billion.
Some oppose this exclusion on philosophical as well as fiscal grounds. Economist Jonathan Gruber, writing in the National Tax Journal (June 2011) said, “… there are a number of problems associated with the exclusion. In particular, a number of studies document that the ESI exclusion leads to (likely inefficient) increases in plan generosity.” He continues, “The exclusion is also highly regressive as both tax rates and ESI expenditures rise with income.”
These are typical arguments of many Democrats, hence the generalization that Republicans are more favorably disposed toward the current system. That is not true, of course, but it is widely believed — and to quote The Bard, “there’s the rub.”