Tuesday, November 5, 2019

What Would Happen to Employers Under Elizabeth Warren’s Healthcare Plan?

Last Friday, Elizabeth Warren rolled out the details of her healthcare plan. She estimates the plan would create $20.5 trillion dollars in new federal spending over a 10-year period (although rivals like Joe Biden claim it would be much more than that). How does she plan to pay for that? Mainly by increasing taxes on employers.

Her plan would impose a new tax on employers equal to 98% of their current health care costs.  Employers would calculate their contribution by averaging healthcare costs per employee over the last three years, multiplying that average by their total number of employees, and paying 98 percent of the total to the government. In effect, Warren’s plan would shift employer healthcare payments from insurance companies to the government. Warren estimates that this tax would raise $8.8 trillion in new revenue over the next ten years.

Small businesses that do not offer their employees health insurance (those with fewer than 50 full-time employees are not required to do so by the Affordable Care Act) would be exempt from the tax. But those who currently offer their employees health insurance would have to pay it.

The plan would also eliminate health savings accounts, medical savings accounts, and employer deductions for medical expenses. These would all be unnecessary since healthcare premiums would be eliminated.

Warren’s plan would also eliminate accelerated deductions that employers can take for capital investments. For example, section 168(k) of the Income Tax Code allows smaller businesses to deduct half the cost of purchasing certain property in the year that it is purchased. Warren’s plan would eliminate that deduction and others like it.

The plan’s goal would be to not increase employer healthcare spending, but instead transfer payments currently made to insurance companies to the government. Whether this is realistic is a matter of debate. One thing that is clear though is that an Elizabeth Warren presidency would almost certainly see higher taxes on employers.