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Policy Theory vs. Reality March 2017 • Lockton Companies Lockton Health Reform Advisory Practice WHY TAXING HEALTH INSURANCE IS BAD POLICY Taxing Employees on Health Insurance Threatens the Group Market Reducing the income tax exclusion for employer-provided insurance increases taxes on employees or forces employers to increase employee out- of-pocket costs, or both. Employees most likely to opt out of coverage are the healthiest and youngest employees. Those remaining will be the heaviest users, skewing the group plan’s risk profile. Threats to the Group Market Could Shift Enormous Costs to the Government Over 177 million Americans receive health insurance through an employer. 1 Employers pay more than $668 billion annually 2 to insure their employees, more than the federal government spends on Medicare. This amounts to, on average, $5,306 toward the premium for employee-only coverage and $12,865 for family coverage. 3 Of those enrolled in group plans today, 43 percent would qualify for Medicaid or ACA-like tax credits, if not for their group plan. 4 Average Amount Employers Pay in Premium Costs 100% 0% Employee Only Family $5,306 $12,865 82.5 % 71 % +9y 43 % Percent of Current Group Plan Enrollees Who Would Qualify for Medicaid or ACA Subsidies L O C K T O N C O M P A N I E S
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Page 1: WHY TAXING HEALTH INSURANCE IS Average Amount …€¦ · WHY TAXING HEALTH INSURANCE IS BAD POLICY Taxing Employees on Health Insurance Threatens the 71 Group Market Reducing the

Policy Theory vs. Reality

March 2017 • Lockton Companies

Lockton Health Reform Advisory Practice

WHY TAXING HEALTH INSURANCE IS

BAD POLICY

Taxing Employees on Health Insurance Threatens the Group Market

Reducing the income tax exclusion for employer-provided insurance increases taxes on employees or forces employers to increase employee out-of-pocket costs, or both.

Employees most likely to opt out of coverage are the healthiest and youngest employees. Those remaining will be the heaviest users, skewing the group plan’s risk profile.

Threats to the Group Market Could Shift Enormous Costs to the Government

Over 177 million Americans receive health insurance through an employer.1

Employers pay more than $668 billion annually2 to insure their employees, more than the federal government spends on Medicare. This amounts to, on average, $5,306 toward the premium for employee-only coverage and $12,865 for family coverage.3 Of those enrolled in group plans today, 43 percent would qualify for Medicaid or ACA-like tax credits, if not for their group plan.4

Average Amount Employers Pay in Premium Costs

100%

0%Employee

OnlyFamily

$5,306

$12,86582.5%

71%

43+57y43%

Percent of Current Group Plan Enrollees Who

Would Qualify for Medicaid or ACA Subsidies

L O C K T O N C O M P A N I E S

Page 2: WHY TAXING HEALTH INSURANCE IS Average Amount …€¦ · WHY TAXING HEALTH INSURANCE IS BAD POLICY Taxing Employees on Health Insurance Threatens the 71 Group Market Reducing the

Other Revenue Streams Are Already in Place

According to the Congressional Budget Office (CBO), taxing health insurance on premiums above the 75th percentile of average group premium costs would generate $174 billion from 2020 to 2026.5 A tax on premiums above the 90th percentile yields considerably less.6 Other larger revenue streams, unrelated to health insurance, already exist under the ACA.

Taxing Employees Won’t Lead to Higher Wages or Reduce Healthcare Consumption

Imposing taxes on insurance premiums merely forces employers to reduce premium costs by imposing higher deductibles and slashing benefits. Despite rosy policy arguments, employers won’t increase wages to compensate for benefit cuts. Of Lockton survey respondents, 67 percent said they definitely would not or probably would not increase wages to offset health insurance cuts; 27 percent were unsure what they’d do. Fewer than 6 percent would definitely or probably increase wages.7

Nor will taxing health insurance reduce healthcare consumption. More than 80 percent of medical claim costs are incurred by only 13 percent of plan enrollees. These, the sickest of the sick, will consume the care they need no matter what their deductible or other out-of-pocket cost.8

Where Costs Are Generated

13+87y 13%

of Group Plan Enrollees

18+82yGenerate

of Claim Costs

82%

The problem isn’t how employers provide insurance; the problem is with the general

health of Americans. And employers are far more engaged in combating health risks

than the individual health insurance market.

POLICY THEORY VS. REALITY

Lockton Health Reform Advisory Practice

How likely is your company to give additional wages to make up for the

reduction in benefits?7

1+6+51+16+26+A

We probably would increase wages.

5.7%

We would definitely increase wages. .25%

I am not sure. 27%

We probably would NOT increase wages.

51%

We definitely would NOT increase wages.

16%

807 respondents

Page 3: WHY TAXING HEALTH INSURANCE IS Average Amount …€¦ · WHY TAXING HEALTH INSURANCE IS BAD POLICY Taxing Employees on Health Insurance Threatens the 71 Group Market Reducing the

Promoting Health

� Eighty-three percent of employers offer on-site biometric screenings, weight loss programs, hypertension management programs, or other workplace wellness programs.

� Wellness programs achieve demonstrable results. For example, prenatal care programs alone save, on average, $1,200 per enrollee.9

Promoting Appropriate Utilization

Employers drive appropriate care through plan design, transparency tools, nurse helplines, telemedicine, preventive care promotion, and on-site clinics.

Promoting Efficient Healthcare Delivery

Employers work to ensure they have the most cost-effective program, continuously evaluating vendor partners, healthcare funding methods, pharmacy management, and reference-based pricing.

Employers With a Culture of Health Report

Employees are satisfied with their job experience

Employees take responsibility for their health

Employees know how to navigate the healthcare system

64%with a culture

of health

17%without a culture

of health

53%with a culture

of health

10%without a culture

of health

39%with a culture

of health

9%without a culture

of health

Source: Optum 2016: The five keys to building a culture of health

83+17y83%

Employers That Offer Some Form

of Wellness Program9

86+35 Employers not

implementing cost-savings programs

3.5%Employers implementing cost-savings programs10

Increase in Healthcare Costs

8.6%

Employer-Provided vs. Individual Market

Healthcare Cost Increases

Lockton Employers

Individual Market

4.63%

15.53%

POLICY THEORY VS. REALITY

EMPLOYERS MANAGE HEALTHCARE COSTS

BETTER THAN THE INDIVIDUAL MARKETEmployers provide health insurance to 177 million Americans and manage costs better than the individual market by promoting:

Appropriate

Utilization

Efficient

Healthcare

Delivery

Health

Page 4: WHY TAXING HEALTH INSURANCE IS Average Amount …€¦ · WHY TAXING HEALTH INSURANCE IS BAD POLICY Taxing Employees on Health Insurance Threatens the 71 Group Market Reducing the

© 2017 Lockton, Inc. All rights reserved.

Our Mission

To be the worldwide value and service leader in insurance brokerage, risk management, employee benefi ts, and retirement services

Our Goal

To be the best place to do business and to work

RISK MANAGEMENT | EMPLOYEE BENEFITS | RETIREMENT SERVICES

lockton.com

kc:28224

1See https://www.census.gov/content/dam/Census/library/publications/2016/demo/p60-257.pdf

2US Bureau of Economic Analysis, Table 6.11D https://www.bea.gov/iTable/iTable.cfm?ReqID=9&step=1#reqid=9&step=3&isuri=1&903=219

3http://files.kff.org/attachment/Report-Employer-Health-Benefits-2016-Annual-Survey, p. 1

4U.S. census 2016 Annual Social and Economic Supplement to the Current Population Survey

4S&P Health Care Cost Index

5Options for Reducing the Deficit: 2017-26 (Dec. 2016), p. 274

6A “straightline” reduction in lieu of interpolation yields an estimate of $70 billion in net revenue

7Lockton survey of its insured and self-insured businesses

8Analysis of Lockton’s Infolock data on its self-insured clients

9SCIO Health Analytics Case Study.

1032014–2015 Lockton Infolock® data.


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