American Health Policy Institute Touts Benefits of Tax Exclusion For Employer-Sponsored Health Insurance

October 21, 2016

This week, the American Health Policy Institute released "Benefits of the Tax-Preferred Status of Employer-Sponsored Health Insurance," highlighting the ways in which the tax exemption for employer-sponsored care makes it possible for 177 million Americans to receive health insurance from their employer and outlining the dangers of moving away from the longstanding policy.  Modifying the tax treatment of employer-provided health benefits has long been a goal of some policymakers and health economists on both sides of the political aisle.  The large dollar amount associated with the tax exclusion makes it a particularly tempting revenue target for those seeking to expand coverage to the uninsured under the Affordable Care Act, as well as for those seeking to repeal and replace the law.  However, major problems would arise for employees if a limit were imposed on the tax exclusion.  A limit may discourage employers from offering coverage to their employees, would serve as a middle-class tax hike, would drive up health insurance costs for millions of American employees, and would eliminate the strong incentives currently in place that pressure large purchasers of health care to demand more efficient, affordable, and effective care from the marketplace.  Mark Wilson, Chief Economist of AHPI and author of the report, says, "Limiting or eliminating the current tax exclusion of employer-provided health care benefits could cost our system far more than any benefits it may provide.  As we have learned from experience with the ACA, encouraging people to get covered is a costly and challenging endeavor, and risk pools are difficult to maintain as well.  Employers, however, are good at both getting people covered and maintaining manageable risk pools.  Public policy should be aimed at encouraging these important goals."