When it comes to the Treasury Department's proposal to tax fringe benefits -- including employer-paid health insurance -- Philip Briggs is not exactly a disinterested party.
Briggs is an executive vice president of the Metropolitan Life Insurance Co., a major underwriter of group insurance policies. Still, the very fact that he is spending so much time -- in speeches, in interviews, in congressional testimony -- opposing the Treasury proposal is instructive in itself. For what it implies is that Metropolitan believes it will lose clients if the proposal becomes law.
And how would it lose customers for the company? "By forcing employees to choose between cash and benefits," the New York executive explained during a recent interview here. "Younger, healthier employees, who need the money, would take the cash, leaving the group plans top- heavy with older, less-healthy workers. If that happened, the plans would fall apart. You need a cross-section to make the plan work."
Moreover, he says, the impact of the proposal would fall most heavily on middle-income and blue-collar workers. The cost of group insurance is basically the same, whether you make $15,000 or $150,000. But the additional tax liability, insignificant to earners in the top brackets, might be enough to tempt lower-level employees out of their company's plans.
Not only would that leave too many people without adequate health-care coverage, it would also drive up the cost of care for the rest of us, he said. The reason: "Our group plans, with their lower administrative costs and negligible commissions, have an average expense rate of 5 to 6 percent of premium -- half that much in the case of such large employers as General Electric or General Motors -- while the expense rates for individual plans can run upwards of 20 or 25 percent."
Briggs also is troubled by the Treasury proposal to tax the total value of employer-paid life-insurance plans. Under current law, the first $50,000 is untaxed.
"For many, many workers in this country, (employer-paid coverage) is the only life insurance they have. When they first put the $50,000 limit on it, back in 1964 or 1965, $50,000 was a sizable policy. But if they had indexed it, it would be about $200,000 now. It probably is proper to tax anything above $200,000, but certainly not the whole thing, as the proposed law would do. Since the value of the policy would be imputed income under the plan, and show up on an employee's W-2, the only way to avoid the tax would be to refuse the insurance -- which a lot of younger, healthier workers would do."
Briggs says there are three rationales (aside from the simple need of the government to increase revenues) for the Treasury proposal. First is the alleged unfairness, since, under present law, the self-employed must pay for their insurance with after-tax dollars. Second is the contention that the tax system should be to collect revenues and not to set social policy, and third is the notion that medical costs have gotten out of hand and must be controlled.
"I don't agree with any of them," Briggs said. "It's true that some workers aren't covered by company plans (though some two-thirds of all Americans have some sort of group health coverage), but it is also true that some companies pay better than others. Is that unfair? Medical costs have to be controlled at the time the costs are being incurred -- for instance, by making sure that people don't go to the hospital unnecessarily or have unnecessary surgery -- not by taxing insurance plans.
"As for the notion that tax policy shouldn't be used to influence how people behave, that is just plain wrong. It seems obvious to me that we should do everything we can to encourage employers to provide, and employees to accept, a basic amount of life insurance, a basic amount of disability insurance and a basic amount of medical-care insurance. The alternative to all those things is to have the government do it all for them."