Employer Tax Exclusion

  • Burman L, Khitatrakun S and Goodell S. Tax Subsidies for Private Health Insurance – Update. Who Benefits and at What Cost? July 2009. [Full Text (pdf)] Policy-makers are considering modifications to the tax treatment of employer-sponsored insurers (ESI) as a way to raise revenue to help pay for health reform and provide incentives to reduce health care costs. Understanding how current subsidies work is important to assessing health reform proposals. This brief is an update of a previous synthesis report published in 2003, and presents essential information about the structure and distribution of existing tax subsidies for ESI and the implications for policy options. Federal tax subsidies for employer sponsored insurance will amount to more than $240 billion in 2010.
  • Jason Furman. Health Reform Through Tax Reform: A Primer.
    Health Affairs, May/June 2008; 27(3): 622-632. [Abstract] The total income tax expenditure for health insurance is $164 billion. In addition, the tax exclusion reduces payroll taxes by about $85 billion, for a total contemporaneous cost of $250 billion. This contemporaneous cost is partially offset by the fact that excluding employer contributions to Social Security from taxable earnings results in lower future Social Security benefits. Taking this into account, the net present value cost of the tax exclusion in fiscal year 2008 is about $200 billion.
  • Roger Feldman and Bryan Dowd. A New Estimate of the Welfare Loss of Excess Health Insurance. The American Economic Review Vol. 81, No. 1 (Mar., 1991), pp. 297-301. Authors calculate that the welfare loss from giving all Americans free care rather than a policy with a $1,000 deductible was $33.4 to $109 billion (1984 dollars). The authors do not attempt to calculate what share of this loss can be attributed to excess coverage encouraged by the tax exclusion.
  • Joint Committee on Taxation. Tax Expenditures for Health Care (2008).
  • Thomas M. Selden and Bradley M. Gray. Tax Subsidies For Employment-Related Health Insurance: Estimates For 2006
    Health Affairs, November/December 2006; 25(6): 1568-1579.[Abstract]
  • John Sheils and Randall Haught. The Cost Of Tax-Exempt Health Benefits In 2004. Health Affairs Web Exclusive, February 25, 2004. [Abstract]
  • Tax Exclusion (Health Affairs search)
  • See Employer Tax Exclusion under Health Reform, Tax Reform for a discussion of federal or state proposals to cap or eliminate this exclusion as part of comprehensive health reform.

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