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Why aren't ACA premiums tax deductible?


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2014 Apr 17, 8:46am   4,164 views  10 comments

by BoomAndBustCycle   ➕follow (1)   💰tip   ignore  

If you get insurance through your job.. and then are enrolled in a Cafeteria plan... Your health insurance premiums are taken out PRE-TAX.. which amounts to a massive amount of savings.

Yet, if you buy insurance thru ACA Care.. or on the open market before ACA care existed... You can't deduct your premiums pre-tax unless it amounts to 7.5% of your gross income or more.

So a couple making say $80K.. and enrolled in a ACA plan for say $500 month can't write off a penny of those $6000 in premiums.

But if they were offered the SAME plan through their work... that $6000 would come out pre-tax and save them $1500-2000 dollars!

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1   curious2   2014 Apr 17, 9:05am  

One reason is inertia. Employer-sponsored medical insurance began in WWII as a way for employers to circumvent wage controls in a tight labor market. Because insurance premium "benefits" are not paid to employees, the premiums are not wages, so they are not subject to wage controls and are not taxed. It started in WWII, and nobody changed it.

A larger reason is, evolution favors complexity, in politics as in life. Large, complex organizations can overpower scattered individual persons. The tax subsidy for employer-sponsored insurance favors large organizations, and has driven America's extraordinary increases in medical spending, higher than anywhere else on earth.

If you want to understand policy, you must set aside any notion that it is intended to be fair; it is intended to reward the lobbyists who wrote it. Do you have your own lobbyist? Probably not. If you work for a large company that provides insurance "benefits", does your employer have a lobbyist? Probably. Does the insurance company? Definitely. Now do you understand?

2   dublin hillz   2014 Apr 17, 9:15am  

The whole notion that ACA will liberate the individual citizens from "shackles" of corporate workworld does not pass the test of evidence or logic. In the "individual marketplace" comparable plans are hunderds dollars per month more expensive for individual or family compared to what the employee would pay while working for a fortune 500 company. There's no way that a private individual can compete with economies of scale inherent in a group plan that's provided by a solid company.

3   curious2   2014 Apr 17, 9:21am  

dublin hillz says

The whole notion....

CBO reported that around 1 million people who were working for employers due to the insurance "benefit" will choose to stop because of the ACA exchanges, and I can believe that, but they aren't really "liberated;" they remain trapped in an artificially overpriced system, and are merely enabled to shift artificially inflated costs via a different mechanism.

4   FNWGMOBDVZXDNW   2014 Apr 17, 9:27am  

There is no such thing as economies of scale. I big company has collective bargaining power when they approach insurance companies. These exchanges should be set up in such a way that gives participants the same bargaining power. That could be done by people running the exchanges, but I'm not sure that it is. I don't really follow this issue.

6   curious2   2014 Apr 17, 10:02am  

YesYNot says

There is no such thing as economies of scale.

LOL

YesYNot says

I don't really follow this issue.

Most people don't, but that doesn't stop them from expressing ignorant and counter-factual opinions (see above).

7   FNWGMOBDVZXDNW   2014 Apr 17, 10:12am  

That part wasn't counter-factual. It is patently obvious that the overhead of a person signing up individually for health insurance over a computer interface is minimal. It is like the overhead of individuals signing up for an amazon account. Following an issue doesn't prevent people from stating illogical crap, and not following little details of an issue doesn't prevent someone from pointing out simple facts.

The price of health insurance is like the price of health care. If you don't have the power of collective bargaining you better be prepared to bend over, bite the pillow, and think back to happier days.

I was recently billed for a 1.5 hour outpatient surgery. The original hospital bill was $32,000. The contract that they had with my insurance - BCBS - was for $6,500 or so, so that is what they accepted. The overhead of billing an individual directly instead of BCBS is zero, yet they will still screw the little guy. It has nothing to do with economies of scale and everything to do with screwing over the infirm to the degree allowed by law.

8   curious2   2014 Apr 17, 11:25am  

sbh says

I don't recommend it to the faint of heart, but I bet I could get the procedure for less than 65 bills.

That's a safe bet, especially if you look across the border in Mexico. A related question is, was the procedure even necessary or helpful, though when people have had procedures they become retroactively committed to the necessity with quasi-religious fervor similar to the converts who have been "saved".

9   anonymous   2014 Apr 18, 12:35pm  

Are many salaried employees signing up for ACA?

For self-employed people, health insurance premiums are in general deductible.

10   curious2   2014 Apr 18, 2:33pm  

sbh says

Now, I could afford it, but I refused to continue it for the simple reason it wasn't worth it.

If only everyone looked at the MID that way, we would never have had a housing bubble. Instead, "you get a deduction" was as compelling as "you get a subsidy," and as false: the deductions and subsidies merely bid up the price, enriching the sellers.

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