Healthcare as Income

Do we really put enough value on healthcare in our country?  We know the tremendous amount we spend on healthcare per person and constantly debate whether we are getting the return for what is spent.  Many have healthcare coverage provided by their employer and most have no recognition as to the value this really adds to their compensation.  There has been a lot of discussion lately as to whether employers should or will continue to pay for healthcare once the Affordable Care Act is fully implemented.  Remember that employer paid healthcare only started as an excuse to add compensation during the WWII wage freeze period.  Most would agree that this will not change dramatically in the near term but it is important to recognize that there is vulnerability here.

I found this article in the New York Times to be somewhat concerning as it could be a signal to the way government is thinking about the value of healthcare.  On one level it is disturbing how much we are spending on healthcare and how it compares to the rest of the income of those living in poverty in our country.  It seems absurd that economists are even trying to manipulate the numbers to show that the poor are not quite as poor as we think they are because they are provided healthcare under Medicaid or Medicare.  The biggest concern may be the fact that by trying to value healthcare and adding it to income this could be viewed as the first step to taxing healthcare.

It is always interesting that when we debate government spending on healthcare we obviously talk about Medicare, Medicaid, VA and other government programs.  We tend to always forget the huge amount the government spends for all of those with employer provided coverage through the tax code.  Employers are able to write off the cost of healthcare as a business expense and employees are not taxed on this income as they are on most other forms of compensation.  This is changing somewhat with the ACA where those with “Cadillac” policies will begin to see tax consequences, but in theory this could go much further.

As much of the industry in now in the “planning” period for 2013 and beyond, perhaps it is worth taking a few minutes to consider what would happen if healthcare benefits were taxed.  As new tax policies are being floated around that lower tax rates and eliminate loopholes and deductions it is not unrealistic to consider this as a possibility.  Perhaps this would pressure individuals to really go after the high cost of insurance.  In many ways the government is really boosting up the insurance companies by allowing people to buy their product with before-tax dollars.  If that went away there might be considerable pressure to lower costs.  This would result in perhaps some belt tightening by the insurers but more significantly it would most likely mean cuts in coverage.  One of the obvious cuts would be in the area of drug coverage.  This is where it is a concern for us in the pharmaceutical world.

When doing strategic scenario planning, one of the key concepts is being able to identify future environmental change by identifying early warning signs that something is going to happen.  Take another look at the NYT article and see if this could be a signal as to what could happen in the future.  Let your mind wander as to the risks and opportunities that might be present to the industry.  If nothing else it will allow you to recognize the value of healthcare and how big a part it really is to our compensation.

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