What do you want to know
- The change is part of the president’s budget proposal for fiscal year 2023.
- The tax change would only apply to policies purchased with pre-tax earnings.
- The provision would come into force in 2023.
Market players in employer-sponsored critical illness and hospitalization insurance face an uphill battle in Washington.
The Biden administration wants to put a portion of benefits payments into workers’ taxable income.
The Treasury Department describes the proposal in the general explanation report, or “Greenbook”, for President Joe Biden’s budget proposal for fiscal year 2023.
The federal government’s 2023 fiscal year will begin on October 1.
The administration placed the proposal in the “Improving tax administration of benefits” section of the Green Paper, under the heading “Clarifying the tax treatment of fixed-benefit health products.”
Fixed benefit healthcare products
Today, most major health insurance policies in the United States pay doctors and hospitals directly for all care patients receive. Insurers usually pay an amount equal to or less than the amount billed. The insurer never sends excess money to the patient.
Fixed benefit health insurance policies are different. Due to Affordable Care Act regulations, these policies pay a fixed amount of cash when an insured patient suffers an illness or injury, or uses health care, in a way that triggers payment of a benefit.
A critical illness insurance policy can pay out $10,000 when an insured has cancer. An insured person will receive the $10,000 even if he decides to leave without care and spend the money on vacation in France.
Similarly, a hospital insurance policy might pay the $100 per day when an insured is in the hospital, even if the hospital only charges $50 per day.
Today, workers can exclude benefit payments from their federal income tax calculations.
Some workers use fixed compensation products with the types of high-deductible health plans that are compatible with health savings accounts or with other high-deductible health plans.