There’s no question that the economy is broken and healthcare is deteriorating quickly in the US. The situation isn’t going to improve any time soon. The title to this article promises quite a lot, so let’s get to it.
The system I’m going to propose involves a series of tax credits to US businesses. I can hear you groan as you read that sentence; I’m generally no fan of tax credits for businesses because in most cases our nation as a whole pays dearly for private profits. But in this case I think that it is the only way to truly stimulate our economy and fix healthcare at the same time. We’ve already seen how well the various economic stimulus packages aren’t working. We will shortly see that the healthcare reform being marched through Congress right now is only going to create incentive for businesses to pawn the healthcare of their workers off to the taxpayer.
Eligibility for tax credits: Only US corporations incorporated and headquartered within the United States of America by January 1 of the tax year are eligible to participate. The corporation must remain incorporated and headquartered in the US for the entire tax year to remain eligible. This means that any company that has moved its legal location to a tax haven like the Cayman Islands or Monaco will not be eligible. The corporation must actually report income for tax purposes to US taxing authorities. US corporations that would be eligible under this program that are sold to, merge with, or are a subsidiary of any foreign corporation are not eligible to participate in the program.
Credits: The credit system is built around the concept of “points.” Eligible corporations earn points for each goal they meet for each covered employee. Points are then multiplied by a dollar amount to determine the total tax credit. In no case will the credit result in a payment to the corporation by the US government; the tax credit can never be greater than the corporation’s normal federal tax assessment (state and local taxes are not considered as part of this program).
Employee types: Points are issued for each permanent full-time employee. Part-time employees, contractors, temporary / seasonal workers, members of the board of directors (unless otherwise considered an employee), foreign employees, and employees of any subsidiary are not counted. Foreign employees recruited under special visa programs like H1B are also not counted. Full-time equivalencies (FTE) cannot be used; the employee must be regularly scheduled to work 40 or more hours per week. Corporations cannot add part-time employees together to create one full-time employee.
Points: The items listed below constitute the points that corporations can earn. The program always earns points; no penalty is ever applied for missing a goal (other than the point isn’t earned).
- 1 point for each each employee for each full multiple of hourly wage above the current federal minimum wage. For example, the current federal minimum wage is $7.25 per hour. An hourly wage of $14.50 would earn 1 point, $21.75 would earn 2 points. Employees paid a fixed salary rather than hourly should have their salary divided by 40 hours per week to determine their hourly wage.
- 1 point for each employee (including family) with full employer paid healthcare. Healthcare must also include mental health and family planning at parity with general health (i.e. mental health and family planning cannot be covered at a lower level). (Note: family members do not add additional points; there is only one point for healthcare.)
- 1 point for each employee where the employer contributes at least 10% of annual wages/salary to the employee’s retirement fund where the employee is fully vested. (Note: retirement contributions do not count toward the hourly ware points.)
- 1 point for each employee with at least one week of paid sick time and two weeks of paid vacation per year. (Note: corporations that use the concept of “personal time off”, PTO, earn the point for at least three weeks of PTO.)
- 1 point for each employee paid at least time and a half for all hours worked in excess of 40 hours each week.
- 1 point for each employee fully reimbursed for college tuition in a year.
- 1 point for each employee fully reimbursed for childcare expenses in a year.
- 1 point for each employee granted fully paid family leave for situations covered by the Family and Medical Leave Act (as amended or succeeded).
- 1 point for each employee covered by group term life insurance of at least twice annual wages / salary.
- 1 point for each employee covered by both short-term and long-term disability insurance.
Example: Let’s say that the employee’s salary is $75,000 per year. That is an hourly rate of $36.06.
- Wage points = 3 ($36.06 is only 3 full multiples above the current minimum wage of $7.25)
- Healthcare = 1
- Retirement = 1
- Time off = 1
- Overtime = 0 (salaried employee)
- Tuition = 0 (did not take college courses)
- Childcare = 1
- Family leave = 0
- Life insurance = 1
- Disability = 1
Total points = 9
This is a typical full-time employee working for the ACME Widget Foundry. The ACME Widget Foundry has 40 employees. The ACME Widget Foundry earns 360 points (40 x 9 = 360). The US government sets the tax credit for each point at $100.00. Given this scenario, the ACME Widget Foundry tax credit would be $36,000.00 (360 x $100.00 = $36,000.00).
If we were to change the tax credit to $1,000.00 per point then the ACME Widget Foundry tax credit becomes $360,000.00 – a substantial amount of money for a company with just 40 employees.
Conclusion: Certainly a tax credit program like this is expensive for the employer. Implementing it shouldn’t be seen as an overwhelming expense by employers. Rather, it should be seen as contributing to their profitability. How would that happen? Employees that are in good health, that are well-educated, and that are not worried about about their family or their retirement are more innovative and more productive. Employees that are paid well will contribute to economic activity that will stimulate others to buy goods and services from the company. Corporate taxes will also be lowered because government will not be required to provide as many “public” healthcare programs (Medicare, Medicaid, and the as yet un-named program working its way through Congress) and the Social Security program can be scaled back for those citizens who have private retirement options (in other words: return Social Security to the safety-net role for which it was originally intended).
This program wouldn’t change how healthcare is delivered in the US. What it would change, however, is how healthcare is paid for. It would encourage corporations who benefit from healthy employees to pay for that rather than shifting the burden to taxpayer funded programs (like Medicare and Medicaid) or various charity systems.
You can quibble over the details (i.e. what goals earn points and how many points each goal earns) as well as the dollar amount of the tax credit for each point. You should resist the temptation to add too many goals or make the goals too complex to determine if compliance has been met. The whole program should be clear and simple to understand with no ambiguous areas to enable corporations to take advantage of the program without actually providing the benefits to employees. The idea is to provide a positive incentive for US corporations to “do the right thing.”
PS – As I thought about offering this proposal I debated whether or not “C-Level” employees and executives should be included. Their salaries will often skew the points. In the end I concluded that they are just as much of an employee of the corporation as any other and that they should be included in the calculations.