That is a major factor, but there is a bigger one: the product that an insurance company will agree to sell you and the product they will agree to sell your employer are not materially the same product.

The actuarial assumption is that substantially all white collar employees will get group coverage and therefore any company's 25, 100, or 500 pulls out of the pool of white collar employee health risks will be actuarially consistent with random selections from the underlying distribution. This is not true of individual insurance purchasers, because the individual purchasers can have more signal on their health risks than their insurance companies. They can, for example, purchase insurance when they know they're likely going to require treatment and decline to purchase (or shift to different coverage options) when they're likely to be healthy.

This is called "adverse selection" and it is the tradeoff in individual insurance. For a while, the US's policy was that insurance companies could underwrite individual health insurance policies in a fashion roughly similar to underwriting business liability policies, which could be caricatured as "We'll give a policy to anyone with a pulse but if you've so much as glanced in the general direction of an expensive outcome at any point, our answer is Hell No, just like substantially every other insurance company's will be."

If you let insurance companies do underwriting, health insurance is (relatively) cheap and lots of people can't buy it on the individual market at any price. If you require "guaranteed issue", health insurance is only (relatively) cheap if everyone buys it.

The US has been wrestling this tradeoff with Obamacare and subsequent proposals. There are no simple solutions to it that make everyone happy.

Shouldn't the price then basically be the same our cheaper if I was willing to lock myself into a multi year contract? I won't know my health status in say five years.

It's kind of a non question if there are 0 insurers willing to offer such a contract.

And given the healthcare policy landscape, there are 0 insurers willing to offer such a contract.

Yes.

As Charlie Munger says: "Never think about something else when you should be thinking about the power of incentives."

Worse yet is that the cost of these benefits creates an incentive for companies to prefer younger, unmarried, and childless employees over others. Until the ACA with the new preexisting conditions rules, it also meant that if you had a chronic condition of some kind, you were essentially stuck at the job you were at when you were diagnosed - if you switched jobs, your employer may not cover your preexisting condition, which could bankrupt you pretty quickly.

Many (most?) employee plans would cover pre-existing conditions as long as there wasn't a "gap in coverage."

So if you didn't start your new job right away, and weren't paying for COBRA or other insurance in the interim, you could have been in trouble.

I doubt the ACA will ever fully live up to its promise because Congressional Republicans need to try and overturn it every 4 months. Even if they don't succeed, they still end up injecting uncertainty into the market, which drives up prices. And it will go on forever and ever. It'll be one of those things Republicans never, ever let go of like abortion and guns.

You nailed it. When I started my own consulting business I just about fell out of my chair when my accountant said I couldn’t write off my health coverage. I pay about $19K a year and that’s after taxes so more like $25K+.

Do you pay self-employment tax? If so you can likely deduct the cost of your medical insurance for yourself and your family. I deducted $6,157 for myself and my wife last year through my single member LLC. Line 29 on IRS form 1040 [0].

[0] https://www.irs.gov/pub/irs-pdf/f1040.pdf

Read this [1], then, consider firing your accountant and filing an amended return.

[1] - https://www.irs.gov/publications/p535/ch06.html#en_US_2016_p...

S-Corp greater than 2% ownership. This means I can sort of write it off, but only after the corporation providing the money through payroll which means paying tax on it upfront. Doing it that way could end up costing me money because payroll taxes are higher than corporate dividends.

In general I think the point is, why can corporations just straight write off premiums for their employees when self-employed types have all these special rules to follow vs just a standard deduction?

If you're an officer in an S-Corp, you're required to pay yourself a "market rate" salary for payroll tax purposes, and cannot legally use the salary/draw distinction as a tax avoidance strategy. If you're not paying yourself a salary, the IRS gets very annoyed.

If you're a sole proprietor, the tax impact should be equivalent whether you choose to take draws or salary:

> Sole proprietors and members of partnerships are free to pay themselves — or otherwise take the profits out of their businesses — whenever they’d like. Payroll withholdings do not apply, but each individual essentially pays the equivalent on his or her reported income at tax time.

https://quickbooks.intuit.com/r/payroll/salary-or-draw-how-t...

Paying the health insurance through payroll would be in addition to the fair and reasonable salary. Say I set a fair and reasonable salary of $65,000, then I want the S-Corp to cover my health insurance $20,000 a year then I need to set payroll to $85,000.

Yes, I could continue to pay myself just $65,000, but the IRS could come knocking and say, "you said you paid for health insurance through S-Corp payroll, so that means you only gave yourself a $45,000 salary which is not fair and reasonable.

Depends on your corporate structure;my accountant told me that the costs may make enough of a difference to justify changing the structure. Not an accountant, and not your accountant.

You need to incorporate. You can't write it off as a 1099 contractor. You CAN write it off as an employee of an LLC.

There's a lot of other good reasons to incorporate as well. Use an S-corp election (as an LLC) and you can get out of paying the SE tax on a significant portion of your income. There are some limitations and you need to bill over a certain amount, but anybody who makes a six-figure income consulting should be doing so under an LLC, not as a 1099 contractor.

Actually, you can deduct health insurance expense as a self-employed (1099) filing a Schedule C, or as a member of an LLC, or as a member of an S corp.

You need to incorporate as an S corp and hire yourself W2. Then pay your "employees" 100% medical that way it's a cost for the company and therefore reduces the company's profit, meanwhile you're not getting taxed to pay insurance premiums.

Going from being an employee to being 1099 and SE is still getting fucked on taxes, just in a different position.

If you're serious about freelancing, your income should be split between a W2 and a K1.

I am not a CPA. This is what I pay him to do for me.

Don't you enjoy yourself in your company? You should be able to offer full coverage if that's what you want. You just have to offer that to all of your employees, but that's probably just you.

I can't tell if you're just joking, but assuming you're serious, the rules (US tax rules, essentially) state that you have to have at least one other "real" (i.e., non-family) employee.

They also state that if you own more than 2% of the company then there are special limitations on expensing health benefits.

That's why many proposals that scrap employer provided health insurance, give the same benefit to employers via HSAs (a pre-tax health savings account ).

In effect, instead of the employer picking the employee's health insurance the employee could go to the open market, but both the employer and employee get the same tax benefits via putting money pre-tax into a HSA which can then be used to pay for health insurance.

It would require massively increasing the maximum contributions on HSAs (currently only $6,750 for a family), since HSAs weren't originally designed to pay for your health insurance, just healthcare costs. But conceptually it is the easiest way to allow consumer choice in the health insurance market.

> putting money pre-tax into a HSA which can then be used to pay for health insurance.

Surprisingly (it was to me, anyway), health insurance premiums don't qualify as a medical expense, so any funds withdrawn from an HSA for insurance premiums will be subject to taxes and penalties.

You're describing how HSAs currently work. The discussion is healthcare reform, so limitations like that would go the way of the low maximum contributions if HSAs were redesigned to be used to pay for insurance.

Ditto for onsite free lunches.

Free lunches at least make economic sense for highly compensated employees. A leisurely 1.5 hour off-site lunch turns into a 30 minute on-site one.

The original rules were designed for miners, who didn't have the choice to take a 1.5 hour off-site lunch (there wouldn't be restaurants for miles).

Right, it makes sense for the company to offer and the employee to accept, but it doesn't make sense that the deck should be additionally stacked by a tax code that makes the meal ~40% cheaper than meals the employee usually buys because they get to buy it with pre-tax dollars.

I don't get this.. even if they get a tax benefit, in net doesn't it cost money rather than save money for the company?

Two scenarios:

1) Company pays you 100k of which you then go spend 19k in the private insurance market to buy insurance leaving you with 81k after insurance costs.

2) Company pays for your health insurance and then pays you a salary of 81k.

They sound the same right? But they aren't! In #1 you will pay income tax based on a 100k salary. In #2 you will only pay income tax on 81k of salary. So you're better off in scenario #2.

Given the strong employee preference for #2 most employers in competitive hiring situations will tend of offer employer sponsored health care.

There are some other reasons why this happens too, but this is one of the biggest.

Ah ok, makes sense, thanks! I guess thats a less than ideal tax condition where entity X can tax write off expense E, but entity Y can't, so it makes sense for Y to pay X rather than buy directly.

In most countries, private health insurance is tax deductible.

Fixable by making health insurance premiums tax-deductible. Also when I was paying for an individual family plan it was nowhere near $19,000/yr. It didn't cover maternity, but that was OK because we were done having kids. But that was roughly 7 or 8 years ago.

That still won't solve the discrepancy because only the top 20-30% of households itemize deductions.

At $20K/year, I would expect a lot more households to itemize. I'm trying (and failing) to calculate off the top of my head what kind of mortgage you'd have to have for a similar deduction. But it's gotta be pretty damn big if your interest is $1600/month.

Well, if you are required to prepare your own tax returns through an accountant then he will most certainly, itemize deduction, you'll be asking him to get your tax bill down a bit. Power of incentive is nothing to be questioned.