Wednesday, April 14, 2010

Health Mandate--A Tax Break in Disguise

From CNN Money.

Tax break, my ass! We'd be overpaying for inferior health care, but if some people want it that way...

"There is a semantic difference between the health insurance mandate and these other tax nudges in that the government doesn't require you to donate to charity or own a home. But the government doesn't really require you to get health insurance either. You are free to ignore the "mandate" and pay the tax."


"The new insurance mandate assesses an excise tax of up to $2,085 per family in 2016 (smaller penalties in 2014 and 2015) for those who do not have "minimum essential" health insurance coverage. Low-income families, Native Americans, undocumented immigrants and some religious groups are exempt.

The truth is, Congress could have achieved the same result by boosting income taxes by the penalty amount for everyone and then providing a tax credit for people with qualifying health insurance. But such an approach might not spur health coverage as much as the penalty will because people perceive tax credits and penalties differently. However, the tax credit approach is clearly constitutional."

Yeah, but what if the penalty is SOOOO much cheaper than the insurance premiums, and gets you the same care you're receiving NOW (at inflated rates compared to the penalty)? Is the employer health insurance pre-tax income shelter worth the big difference in price? It would cost me half to just pay the penalty, but I'd lose that other half in income shelter, according to this man's thinking. Fine, but what am I getting for this "other half" much shelter am I buying for that other half? I'm protecting a lousy $350 in taxes! I could protect more than that by resuming my IRA contributions (don't worry--the 401k is maxed).

The lost "other half", or maximum penalty amount (they're basically both the same), could be put into my traditional IRA (after tax), and would yield more in tax savings than putting it into an employer health plan--$420 versus an insurance-sheltered $350. The Saver's Credit added onto that makes it even more profitable!

$2100 (rounded penalty) X 15% (tax bracket) = $350

$2100 X 20% (IRA deduction) = $420

$2100 X 50% (Saver's Credit--no more than $1000) = $1000

I guess this only works out this way if your salary is below $100k, you're in the 15% bracket, and your employer insurance costs are twice the penalty (or more).


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