Why is company provided health insurance tax free, but individual health insurance is not?
During World War II, the United States (US) instituted wage and price controls.  To attract better employees, companies would offer benefits to get around salary limits.  Health insurance was one of the more successful benefits.   At that time, income taxes were newer and there were many ways to evade them.  Companies could generally deduct expenses.  So at that time, health care was deductible because everything was.  And at that time, only wages were taxable compensation from employer to employee.   Since that time, many other benefits have become non-deductible for employers, e.g. housing or the reduced deduction for meals and entertainment.  But health care is generally regarded as different, as a necessity.  While everyone needs to eat, not everyone needs to eat at a $100 a meal restaurant.  People who need expensive health care really need it.  People who eat expensive food just prefer it.   And of course, health care is more intermittent where food is relatively consistent.  You don't need ten thousand calories one day and zero the next.  But some families have no health care expenses in a year while another might have cancer or a pregnancy.  Note that medical care expenses can be deducted for individuals if they are large enough in aggregate and you itemize.   And of course both businesses and workers have incentives to maintain the current system with deductibility.  Health insurance is a common benefit.  Housing is not (although it's worth noting that travel housing and meals are deductible).  So there have been few people impacted by making housing taxable while many people would be impacted by taxable health insurance.   You can deduct health insurance costs if self-employed.  It's also not true that health insurance is the only benefit with preferential tax treatment.  Retirement and child care are also deductible.  Even meals and housing can be deducted in certain circumstances.  The complex rules about what and how much is deductible.   There have been rumbles about normalizing the tax treatment of health insurance and medical care, but there is a lot of opposition.  Insurance companies oppose making all healthcare expenses deductible, as that reduces their effective benefit.  They would prefer only insurance premiums be deductible.  Traditionally employed individuals oppose making health insurance taxable, as that would increase their taxes.  So the situation persists.  There isn't quite enough support to move in either direction, although the current compromise is economically silly. All questions regarding why is activity X taxed but activity Y taxed differently boils down to: The legislature wanted to promote or discourage the activity. By making employer provided healthcare tax free to the employee, the average worker like the plan. Not only is a significant portion not coming out of my paycheck, I also don't have to pay taxes on the benefit. Some organization pushed for this and the legislature agreed. This probably is a question that belongs on History but here's the basic reason: the or Employee Retirement Income Security Act (ERISA) of 1974 established that health benefits under approved plans were not taxable to the employee.  If the employer were to pay for an employees non ERISA approved individual plan, it would be a taxable benefit. The longer story is that many polticians (esp. President Richard Nixon) were concerned that public pressure was going to lead public sentiment toward nationalized health care.  This made health insurance more affordable to employees and effectively made it a cheaper way to compensate employees similar to how 401K contributions are worth more (in nominal terms) to the employee than an equivalent amount of cash.  While the law was not signed by Richard Nixon due to some other stuff that was going on, it was something proposed and pushed by his administration. The idea is that the premiums (or costs) associated with the plan are a business expense, you know that already.  The distinction here is that employees don't pay premiums, they elect to contribute. The company sponsors a plan, the employees then choose to accept less salary in order to participate in the employer's plan.  The idea is that you're foregoing income. Why is the employee not taxed on this cost?  One major reason is that the employee has no say in, and often no idea, what the gross costs are (some find out if they ever receive COBRA election paperwork). There are more benefits than strict healthcare that are Section 125 eligible.  The government has a vested interest in keeping the population healthy, and when the ERISA laws and Section 125 were written it was (and still is) a pretty low friction way to get health insurance out to more people.  At this point, taking away the tax break from the employees would be a huge government take away from most of the population.  Try to get a politician to take something away from taxpayers. Why doesn't the deduction exist in kind to people buying individual coverage?  Ask your legislators.  There are thousands of preferential tax treatment oddities, where some industry will get some sort of benefit or break.  I'm not sure what leads you to think there needs to be some supremely logical reason for this oddity to exit. Basically a company who provides health insurance for their employees provides it as part of the employee's salary package. This is an expense by the company in its pursuit of making income. In general, tax deductions are available on any expense incurred in deriving income (the exception is when social policy allows deductions for other types of expenses). If you pay for your own health insurance individually, then this expense is not an expense for you to derive your income, and as such is not tax deductible.
You are correct, kids are entitled, they don't know what hardwork is like. All they want to do is open their hands and receive. I told my 16 year old cousin what would he do if I've given him 1000dollars. He said buy video games. I mean for an 11 year old I can accept that. But for a 16yr old going to be 18 soon? It's not even about blue collar or white collar jobs, is work is work in general. Bad parenting + entitlement = decrease financial &amp; social status. Also, for those who doesn't understand about health insurance. People only need health insurance hoping that they get sick. Insurance companies are not charities. They are here for profit. Why would insurance company sell insurance to sick people. I don't know why people down vote your logic when is pure reason. Free healthcare is not a human right and the affordable care act is not healthcare, it's mandated health insurance - a guarantee of payment to private insurance companies. It is a tax on the poor. They can't afford the rising healthcare costs from the bubble ACA created, so now they have to pay a fine. That's a tax. In America, if you go into a hospital without insurance, you will be treated. But now, if you don't have insurance, you're also a criminal. It's the slow, constant creep of socialism. You can free yourself by becoming a member of a health share that is cash-based and exempt from the ACA tax penalty. I use Samaritan Ministries (top rated) and it's been a great experience. "The editorial highlights some reasonable reforms-- consistent and transparent pricing--- and then seemingly takes a left turn. This concept or ""cutting out the middle man"" is a fantasy born of a time when local doctors provided affordable but limited care to a limited population. It's been a hollow talking point perpetuated by industry lobby in response to single-payer proposals. Keeping health care between patient and doctor doesn't address the key reasons why health insurance exists in the first place.   The author suggests government-funded escrow accounts for those who can't afford the cost of healthcare. What about those just above the needs-tested cutoff? It seems that this approach disregards and therefore punishes the middle class. Must those with chronic illness become indigent before the government will assist in their care? The point of insurance is that when you get sick, you aren't left spending your life savings on medical care. Level and transparent pricing doesn't change the fact that certain treatments are still going to be expensive. The auto insurance comparison always frustrates me because people are not cars. If your car is breaking down every 30 miles, you can take out a loan and get a new car. A new body, not so much. Furthermore, every auto insurance claim raises your premium. All of this amounts to a tax on sick people.   Single payer or even Medicaid for all (who want it) means the government has enormous pool of patients (or consumers if you wish) with which to negotiate pricing. Do you really think St. XYZ Hospital is going to cut you, an individual, a deal for no reason? Where is the leverage? Particularly in the case of emergencies?  It isn't perfect, but politicizing and misconstruing the tragic case of a brain-dead infant does not strengthen your argument. Charlie Gard's case was not a matter of death panels; it was a matter of heartbroken parents in denial that their children was not going to get better. It's indeed an ethical quandary and no doubt a tragedy, but the hopelessness of the situation was not dictated by a heartless government but by health care professionals.   This is much more than I wished to say initially, but I am tired of seeing simplified fantasy being sold as panacea for what is an extremely complicated subject. Also, I'm not a public policy scholar, but I think I've done a better job than the author." "The general answer to this is ""yes"".  When you're dealing with single-digit millionaires, the answer is that their insurance habits and needs are basically the same as everyone else.  When you get into the double digit and triple digit millionaires, or people worth billions, they have additional options, but those basically boil down to using ""self-insurance"" rather than paying a company for an insurance policy.  The following is based on both what I've read and a fair deal of personal experience working for or with various stripes of millionaire, and even one billionaire. Addressing the types of insurance you mention: This is generally used to provide survivors with a replacement for income you can no longer provide when dead, in addition to paying for costs associated with dying (funeral, hospital/hospice bills, etc).  Even millionaires and billionaires have this, yes, but the higher your net worth, the less value it has.  If you're worth 9 or 10 figures, you probably already have trust funds set up for your family members, so an extra payout from an insurance policy is probably going to represent a small fraction of the wealth you're leaving your survivors, and as has been noted, insurance makes a profit, so the expectation by the insurance company is that they'll make more money on the policy than they'll have to pay out on death.  That being said, the members of the 9+ figure club I've worked for all had multi-million dollar life insurance policies on them, which were paid for or heavily subsidized by the companies they owned or worked for.  I doubt they would have held those policies if they had to pay the full cost, but when it's free or cheap, why not? Absolutely.  As health insurance in America is an untaxed employment benefit, owing to regulations from World War II, all the wealthy folks I've had contact with got outrageously good plans as part of the companies they work for or owned.  Having said that, even their trust fund beneficiaries held health insurance, because this type of insurance (in America, at least) is actually not really insurance, it's more of a pre-payment plan for medical expenses, and as such, it provides broader access to health care than you'd get from simply having enough money to pay for whatever treatments you need.  If you walk into a hospital as a millionaire and state that you'll definitely be able to pay for your open-heart surgery with cash, you'll get a very different response than if you walk in with your insurance card and your ""diamond-level"" coverage.  So, in this case, it's not as much as about the monetary benefits (although this is a type of ""insurance"" that's generally free or heavily discounted to the individual, so that's a factor) as it is about easier access to health care. Although this is required by law, it's one of the common forms of insurance that the very wealthy can, and often do handle differently than the rest of us.  Most (if not all) US states have a provision to allow motorists to self-insure themselves, which amount to putting up a bond to cover claims against them.  Basically, you deposit the minimum amount the state determines is required for auto insurance with the responsible state organization, get a certificate of self-insurance and you're good to go.  All the high wealth individuals I know when this route, for two reasons - first of all, they didn't have to deal with insurance companies (or pay sky-high rates on account of all the speeding tickets they picked up) and secondly, they made their deposit with government bonds they had in their portfolios anyway, and they could still collect the interest on their self-insurance deposits.  Of course, this meant that if they wrecked or dinged up their Maserati or Bentley or whatever, they'd be out of pocket to repair or replace it... but I guess if you can afford one $200,000 car, you can afford to buy a second one if you wreck it, or get by riding one of your other luxury automobiles instead. Since someone else mentioned kidnapping insurance, I'll point out here that what Robert DeNiro did in Casino when he put a couple million dollars into a safety deposit box for his wife to use if he was kidnapped or needed to pay off a government official is essentially the same thing as ""self-insurance"".  Putting money away somewhere for unexpected events in lieu of buying an insurance policy against them. In real life, the very wealthy will often do this with US treasuries, government bonds and other interest-bearing, safe investments. They make a little money, diversify their portfolios and at the same time, self-insure against a potential big loss. This is another insurance area where even the very wealthy are remarkably similar to the rest of us, in that they all generally have it, yes, although the reason is a little different.  For normal folks, the home they own is generally the largest part of their net worth, or at least a very substantial fraction, for those older folks with retirement savings that exceed the value of their homes.  So for us, we have home owners insurance to prevent a catastrophic event from wiping out the lion's share of our net worth. If you're an ultra-wealthy individual who can afford an 8 figure home, that's not really the case (at least with the ones I've dealt with, who made their fortunes in business and are good managing their wealth and diversifying their assets - could be different for sports stars or the entertainment industry), and these people generally own multiple homes anyway, so it's not as big a deal if they lose one. However, no one actually buys a multi-million dollar home by writing a multi-million dollar check.  They get a mortgage, just like the rest of us.  And to get a mortgage, insurance on the property is a requirement.  So yes, even the ultra wealthy generally have insurance on their home(s).  There is an element of not wanting to shell out another 20 million if the place burns down, or someone breaks in and steals your valuables, but the bigger part of the reason is that it's required to get a mortgage in the first place, which is generally done for financial reasons - interest on your mortgage is a tax deduction, and you don't want to sink millions of dollars all at once into buying a property that's not going to appreciate in value, when you can get a mortgage and invest those millions of dollars to make more money instead." Despite the ACA offering generous deductions, a lot of small businesses still cannot afford the initial capital involved in offering health insurance plan to their employees... Therefore we cannot take advantage of these deductions...  Putting us at a disadvantage for finding low-to-mid skilled workers, to the larger corporations that are now mandated to offer the benefits.. "One reason is because car insurance is mandated. Mandated insurance means the government is forcing people to purchase it, which also means that everyone must have the opportunity to purchase it at a reasonable cost, even if the insurer would normally not choose to insure them. In mandated industries, risk pools are formed which means that as a whole, lower risk members partially subsidize higher risk members. In mandated industries that have a large risk variance, the insurance system would break down if everyone was charged their ""fair share"" because high risk members would be unable to afford a policy. (This is even more prominent with health insurance than car insurance because the difference in risk is vastly greater.) On a positive note, perhaps you may get a warm and fuzzy feeling knowing that you are helping out others ""in need""." "Just like all employee benefits there is a focus on removing or limiting owners of businesses' ability to abuse tax preferences under the guise of an employee benefit. As you point out there is an overall plan maximum 401(k) for employer contributions and match contributions.  There is a nondiscrimination test for FSA programs (there is also a nondiscrimination test for medical plans under sections 125 and 105(h)).  Employer contributions are counted toward the total of HSA contributions.   Why an HSA has a different maximum arrangement than 401(k) is anyone's guess.  But the purpose of the limit is to prevent owners of companies from setting up plans that do little more than funnel tax free funds to themselves.  An owner/employee could pay themselves a wage, contribute the maximum, then have the ""employer"" also match the maximum, so there are limits in place." "Even though this isn't really personal finance related I still feel like there are some misconceptions here that could be addressed. I don't know where you got the phrase ""pass-through"" insurance from.  What you're describing is a self-funded plan.  In a self-funded arrangement an employer contracts a third-party-administrator (TPA), usually one of the big health insurance carriers, to use it's provider network, process and adjudicate claims, etc.  In addition to the TPA there will be some sort of stop-loss insurance coverage on each participant.  Stop-loss coverage usually provides a maximum amount of risk on a given member and on the entire population for a given month and/or year and/or lifetime.  The employer's risk is in between the plan deductible and the stop loss coverage (assuming the stop-loss doesn't have a maximum). Almost all of the claim dollars in a given plan will come from very very few people.  These costs typically arise out of very unforeseen diagnoses not chronic issues.  A cancer patient can easily cost $1,000,000 in a year.  Someone's diabetes maintenance medicine or other chronic maintenance will cost no where near what a botched surgery will in a year. If we take a step back there are really four categories of employer insurance. Small group is tightly regulated.  Usually plan premiums are filed with a state authority, there is no negotiating, your group's underwriting performance has zero impact on your premiums.   Employers have no way of obtaining any medical/claim information on employees. Mid-market is a pooled arrangement.  The overall pool has a total increase, and your particular group performs better or worse than the pool which may impact premiums.  Employers get very minor claims data, things like the few highest claims, or number of claims over a certain threshold, but no employee specific information. Large-group is a mostly unpooled arrangement.  Generally your group receives it's own rating based on its individual underwriting performance.  In general the carrier is offloading some risk to a stop-loss carrier and employer's get a fair amount of insight in to claims, though again, not with employee names. Self-funded is obviously self-contained.  The employer sets up a claims checking account.  The TPA has draft authority on the account.  The employee's typically have no idea the plan is self funded, their ID cards will have the carrier logo, and the carrier deals with them just as it would any other member.  Generally when a company is this size it has a separate benefits committee, those few people will have some level of insight in to claims performance and stop-loss activity.  This committee will have nothing to do with the hiring process. There are some new partially self-funded arrangements, which is just a really low-threshold  (and relatively expensive) stop-loss program, that's becoming somewhat popular in the mid-market group size as employers attempt to reduce medical spend.   I think when you start thinking on a micro, single employee level, you really lose sight of the big picture.  Why would an employer hire this guy who has this disease/chronic problem that costs $50,000 per year?  And logically you can get to the conclusion that with a self-funded plan it literally costs the company the money so the company has an incentive not to hire the person.  I understand the logic of the argument, but at the self funded level the plan is typically costing north of half a million dollars each month.  So a mid-level HR hiring manager 1. isn't aware of specific plan claims or costs and is not part of the benefits executive committee, 2. won't be instructed to screen for health deficiencies because it's against the law, 3. a company generally won't test the water here because $50,000 per year is less than 1% of the company's annual medical expenses, 4. $50,000 is well below the cost to litigate a discrimination law-suit.    Really the flaw in your thought process is that $50,000 in annual medical expense is a lot.  A harsh child-birth can run in the $250,000 range, so these companies never hire women?  Or never hire men who could add a spouse who's in child bearing years?  Or never hire women who might have a female spouse who could be in child bearing years?  A leukemia diagnosis will ratchet up $1,000,000 in a year.  Spend a bit of time in intensive care for $25,000 per day and you're fired?  A few thousand bucks on diabetes meds isn't anything relative to the annual cost of your average self-funded plan. The second flaw is that the hiring managers get insight in to specific claims.  They don't. Third, you don't hand over medical records on your resume anyway. I typed this out in one single draft and have no intention of editing anything.  I just wanted paint a broad picture, I'm sure things can be nit-picked or focused on."