by Mike Hall, May 6, 2011
More than 156 million Americans get their health care coverage through their employers. Employer and most worker contributions to health insurance premiums are excluded from workers’ taxable incomes.
Even after health care reform is fully phased in, the Congressional Budget Office (CBO) estimates that nearly 160 million people will hold employer-sponsored insurance plans.
But recent proposals—under the guise deficit reduction—have called for ending or reducing that exclusion. The most recent came from last year’s budget deficit commission report that calls for a cap on the premium tax exclusion before eliminating it entirely.
A new report from the Economic Policy Institute (EPI) finds that the cap would impact almost all family health plans by 2018, including “middle of the road” plans—not just high-cost plans. Not only would taxing the plans encourage employers to drop coverage, it would also lead to less comprehensive care for working families.
The report “Reducing the federal deficit by increasing households’ risk: Phaseout of tax exclusion for health insurance premiums leads to less health and financial security,” also finds that despite claims by its backers, the tax cap and eventual complete exclusion won’t lead to reduced health care costs, just reduced health care coverage for working families.
Removing the tax exclusion has the potential to create a financial hard ship for many working families, particularly those who rely on comprehensive coverage to cover costs of their se rious illnesses. It is equivalent to a cut in benefits, a cut in total compensation, and a shift of risk onto workers. While it is touted as a cost-containment mechanism, the tax ex clusion may simply lower health care usage, not prices, and actually increase total health costs for chronically ill people who go without cost-effective treatments.