The complications are why this issue needs to be tied to comprehensive tax reform, although that would foil Rahm Emmanuel's goal of getting reform done by Labor Day. Under a VAT or Buinses Income Tax Model, external payments for health insurance would not be taxed as income, but would be VAT taxable, with the tax paid credited to the firm's VAT payment. There should be a ceiling for payments tied to any residual high-income tax, so that payments on behalf of an individual over the cap would be reported as income to be taxed, if applicable. For most folks, they would not be paid, but would for individuals earning over $50K/families over $100K under Graetz proposal and individuals over $75K and families over $150K in mine. This could still bring in some serious cash if the caps and income floors are set low. Under the Graetz proposal, the rate would be between 20% and 25%, while under mine it would be between 6% and 15% (the difference being that I have a huge business income tax - which oddly makes mine more regressive - except for the fact that my prebate for families is $500 per child per month and the fact that I do away with the home mortgage deduction).