Back in the 1940s, our federal government enacted wage controls that restricted what some businesses could pay their employees. (There were smart people who spoke out against this terrible idea but unfortunately not enough.) This resulted in businesses looking for other ways to compensate their employees and the IRS decided that it would not treat benefits such as health insurance as taxable wages. Until then people generally paid medical fees out of pocket in the same way they paid for virtually anything else out of pocket. The fees up until were relatively small for two reasons: 1) medicine was not very advanced so when something catastophric happened there was not often much that could be done to help the patient and therefore no huge expenses were incurred and 2) since people were paying their doctors directly it was a very efficient and fair market.
So 70 years later, even though the wage controls thankfully disappeared, the IRS treatment of health insurance did not. Health insurance benefits continue to not be taxed as income. At first glance by the uninformed citizen (such as me until a few years ago), this appears to be a good thing. But in reality it is actually a terrible thing. Here is why.
First, let's look at the first obvious and intended consequence: ..
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