Taxing job-based health benefits would adversely affect low income families, according to a new study completed by two Harvard researchers.

The study, called the regressivity of taxing employer-paid health insurance appeared in the August 19, edition of the New England Journal of Medicine, and was written by David Himmelstein MD, and Steffie Woolhandler MD, both professors at Harvard Medical School (Boston) and primary care doctors at Cambridge Hospital (Cambridge, Massachusetts).

"What we were able to do with this study was explode the conventional wisdom that [taxing job-based health benefits] is a progressive tax," Woolhandler told Medical Device Daily. "It is, in fact, a regressive tax."

A progressive tax system is a system in which those who earn higher incomes pay a higher percentage of their income than those with lower incomes. A regressive tax is just the opposite and is a tax that takes a larger percentage from low-income people than from high-income people.

The two analyzed income and insurance data from the 2005 Current Population Survey of the U.S. Census Bureau as well as a few other sources. The authors findings were revealed that taxing workers' job-based health insurance would cost those with low-incomes ($0-$10,000 annually) 18.3% of their income, but high-income over ($100,000) families would pay a mere 2.7%.

Under this same model, the authors argue that the tax rate would drop even lower for the super-rich. "A Goldman Sachs executive who enjoyed the firm's infamous $40,543 health plan got a federal tax subsidy of about $15,367 last year," they write. "But that's only 0.13% of the bonuses received by the company's four top earners. So though taxing health benefits would spare the uninsured, the average poor family with employer-paid coverage would be taxed at a rate 140 times higher than Wall Street titans."

Woolhandler added that a plan like this would be traumatic to the healthcare system and to the economy.

"If something like this were to be adopted, two bad things would happen," Woolhandler said. "The first is that the low income person is really going to suffer and the other bad thing is that employers would stop adding health benefits. Employer coverage is going to shrink and those low income families would have to get insurance through the private insurance market."

Woolhandler said the best answer is to simply go toward a single-payer system.

Both she and Himmelstein are co-founders of Physicians for a National Health Program, an organization of 16,000 doctors and medical professionals who advocate for single-payer national health insurance.

"We absolutely need a single payer, Medicare-for-all program. With the single payer option you would get a $400 billion savings by simplifying administration. We need to spend our dollars for healthcare on actual care not administrative costs," she said.

Woolhandler also shot down the healthcare plan in its current existence. She described the plan in its current form as irrevocably bad and added it was hard to debate the merits of it.

"It's like being at the bedside of a dying cancer patient and asking them if they want Tylenol or aspirin," she told MDD, when asked if the plan was salvageable.

So far, President Obama's healthcare plan has come under fire from some members of the Democratic Party, Republicans and the public.

One of the greatest points of contention that critics have latched onto is the public option idea, which many are saying is too expensive and would drive the country deeper into debt. There are also concerns that this plan would drive private insurers out of business.

Late last week The Wall Street Journal reported that White House and Senate Democratic leaders were mulling breaking healthcare legislation into two parts and passing the most expensive portions without Republican support.

But Woolhandler said this news isn't all doom and gloom and it could be a window opening for the single payer option to gain ground and support when lawmakers reconvene next month.

"We feel like this debate has moved the football down the field for the single-payer option," she told MDD. "We're definitely ready for September."

Omar Ford, 404-262-5546; omar.ford@ahcmedia.com