Employer Group Plan Tax Breaks vs. Salary Increases

December 8, 2010

Earlier this week the Obama administration announced that employer-sponsored group health insurance plans could have their tax breaks repealed in planned deficit cuts. In an Associated Press article Ricardo Alonso-Zaldivar wrote, “Many economists believe employers would boost pay if they didn’t provide health care. Proponents of repeal usually call for a tax credit to offset part of the cost of individually purchasing coverage.”

During recent contract negotiations involving city workers, a small city in southern Michigan (population about 1,500) was asked to pay the workers an additional $5,000 per year if the employees elected not to enroll in the offered group health insurance plan. This was declined by city negotiators when it was determined the city’s contribution to the plan was no where near the requested $5,000.

The question becomes this: If the tax breaks for employer-sponsored group health insurance are indeed repealed, would it then be more cost-effective for this particular city to drop the employees’ insurance plan and boost their salaries by the requested amount? This is something the Mayor and City Administrator will have to consider.


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