Healthcare Reform: New Taxes vs. a New Direction

When President Obama said he wanted to spread the wealth, he wasn’t kidding. The budget, stimulus, bailouts—the numbers are so large that they are beginning to lose meaning to the average American. Now he is pushing universal healthcare, with the same astronomical numbers attached, and to pay for it, he wants to tax employer-paid health benefits as well as impose a number of sin taxes on things like sports drinks and soda, snack foods and such. Never mind that he will be driving up the cost of living for millions of Americans, he will be eliminating one of the major incentives for employers to offer healthcare coverage in the first place. 

This tax-employer-healthcare plan will hit small businesses especially hard. Many small business owners that do offer healthcare benefits struggle now to pay their share of the costs. To be able to continue offering the benefits, they have to shift more and more of the cost burden onto their employees. It is likely that under the President’s plan, these people would be shifted to a government-paid plan that would compete with private insurance and, eventually, supplant it. The problem, of course, is that the two prime examples of government-run healthcare—Canada and the United Kingdom—show that the scheme is an abject failure with a number of people dying each year before it is their turn to receive the treatment they need. 

Even one such needless death is too many; one person suffering longer than they need to is too many. There has to be a better option. In fact, there is. 

The sad fact is that Americans spend more time, thought, money and energy on keeping their cars running than they do on keeping their bodies running. Not all Americans, certainly, but enough are spending their lives in a lifestyle of affluent squishiness to make taking care of their medical needs very expensive. Many never see a doctor unless there is something wrong with them, or opt for taking care of themselves. The point here is that there are many problems that don’t crop up in people who take care of their health, and those that do are usually caught earlier, before they become big issues. 

That is not to say that there are no accidents, viral or bacterial illnesses, poisonings or any one of a thousand things that can happen. There certainly are and they are expensive to treat in their own right, but it is one thing to be hit by a car and quite another to smoke your way to some chronic lung disease that will hang on as long as you do, and expect the taxpayer to pick up the tab. 

What is needed is an emphasis on wellness, on prevention rather than cure, and that means beginning with wellness programs. The problem now is that wellness programs tend to be taxed as income. According to the National Business Group on Health: 

Employers may deduct what they pay for employee wellness as business expenses under current tax law; generally employees must report the value of employer contributions for this purpose as income subject to taxation. Also under current tax law, employees can not use pre-tax dollars to pay for these programs. Only employees whose doctors require participation in wellness programs and activities as part of treatment for medical conditions—including medical obesity—can exclude them from taxable income and use pre-tax dollars to pay for their share of expenses. 

Furthermore, the complicated tax requirements make it difficult for employers to pay for health and wellness programs for employees. Employers must determine which employees can exclude employer contributions and which employees must report them as taxable income, raising health information privacy issues along with the extra administrative burden, both of which reduce the number of employers offering and employees participating in wellness programs. 

What this amounts to is a primary focus on treating disease since there is little or not incentive to actually try and prevent it, even though money spent on prevention would save many times the amount spent on treatment down the road. Do we know all this for sure? Consider the following statistics gathered by the NBGH: 

  • In the past quarter century, adult obesity has doubled in the United States and childhood obesity has tripled. The Centers for Disease Control and Prevention (CDC) reported in 2007 that more than a third of U.S. adults, over 72 million people, were obese (Ogden, et. al., 2007).
  • Overweight and obesity associated prevalence of 11 chronic conditions grew 180% from 1997-2005 (8 Years) (Thorpe, et. al., for the National Business Group on Health, 2009).
  • The number of working-age adults who report being diagnosed with at least 1 of 7 major chronic conditions (heart disease, hypertension, stroke, diabetes, emphysema, asthma, and cancer) has grown 25% since 1997 to nearly 58 million by 2006 (Hoffman, et. al., 2008).
  • CDC reports that more than 133 million Americans—45% of the total population—have at least one chronic disease. Chronic diseases kill more than 1.7 million Americans yearly, and account a third of years of potential life lost before age 65 (CDC, 2005).
  • Average per capita health spending increased by 40% from 1997 to 2005, but the average for the 15 costliest conditions—all associated in some way with obesity—jumped 55% (Thorpe et. al., for the National Business Group on Health, 2009).
  • Overall, obesity accounts for 27% of the increase in inflation-adjusted health expenditures among working age adults. Inflation adjusted medical spending for working age adults increased by nearly 70% from 1997 to 2005, growing from $316 million to $526 million (Thorpe et. al., for the National Business Group on Health, 2009).
  • If the prevalence of obesity were the same today as in 1987, health care spending in the U.S. would be 10% lower per person, or about $200 billion less each year (Thorpe et. al., for the National Business Group on Health, 2009).
  • The World Health Organization estimates that at least 80% of all cases of heart disease, stroke, and type 2 diabetes and up to 40% of cancers could be prevented if people ate healthier, exercised, and stopped using tobacco (WHO, 2005).
  • An authoritative review of more than 50 studies of worksite primary prevention and care management programs concluded that they reduced tobacco use, dietary fat consumption, high blood pressure and total cholesterol levels and days if work lost while also increasing productivity (Goetzel, et. al., 2008). 

Consider: 80% of heart disease, stroke and type 2 diabetes and 40% of cancers could be eliminated if people would only take care of themselves. That comes to a savings of approximately $482 billion in medical costs—482 billion dollars that do not need to be spent—482 billion reasons to change the focus of our healthcare to wellness. 

The President’s plan, however, does not focus on that. While he is loathe to discuss details, Obama has released a number of points that he wants the plan to cover, including:

  • Guaranteeing choice of health plans and physicians
  • Making health coverage affordable
  • Protecting families’ financial health
  • Investing in prevention and wellness
  • Providing portability of coverage
  • Aiming for universality
  • Improving patient safety and quality care
  • Maintaining long-term fiscal sustainability. 

The cost for his plan, as set out in the 2010 budget is $635 billion over the next 10 years, though many are saying that it could come out to twice that amount, approximately $1.2 trillion. If everything was to change today, and costs were reduced as much as the statistics suggest, we would be able to save between 3 and 4 trillion dollars. Even if the savings was no where near that, an emphasis on wellness would still pay for the expansion that the President is looking for with no need to tax existing healthcare benefits, soda, chips, sports drinks or anything else they are looking at right now to fund this program. More than that, employers would still have a reason to offer these benefits to their people. 

Instead of looking for more ways to squeeze more money out of the taxpayer, Congress should be looking for ways to make wellness programs more attractive. Instead of taxing healthcare benefits, they should be getting rid of the taxes on wellness, allowing people to buy these programs with pretax dollars and allowing them to deduct such expenses over a certain amount from their income taxes. 

Healthcare benefits are important to your company, to you and to your employees. Increased taxes on these could result in you and many other small business owners having to terminate the benefits entirely. There is another way. Contact your senators and congressmen and remind them of the huge cost benefits of wellness.