Republicans Push Changes to Tax Treatment of Health Coverage

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By Sara Hansard

April 14 — House Republicans April 14 pushed for changing the tax treatment of employer-sponsored health care to encourage more consumer-driven options.

Referring to the tax exclusion for employer-sponsored health insurance, which will result in an estimated $250 billion less tax paid in fiscal 2016, House Ways and Means Committee Chairman Kevin Brady (R-Texas) said at a hearing, “How can we make this nearly 100-year-old tax break more flexible so Americans can have a new, modern option to choose a health plan that fits their needs and can travel with them to a new job, to start their own business or to raise their family at home?”

About 155 million Americans, some 57 percent of the population under the age of 65, receive health insurance through employers, a system that has been fostered by the tax exclusion. However, many economists have long argued that it results in consumers being less sensitive to health-care prices and leads to higher health costs.

Democrat: Changes Would Disrupt Coverage

Committee ranking member Sander Levin (D-Mich.) argued that eliminating or limiting the tax exclusion that employers receive when they offer health insurance to employees “would disrupt the employer-based health insurance system” and likely result in many employers no longer offering health care to employees. It would leave many, including employers who are older or in poor health, without the ability to find affordable coverage, he said.

Joseph Antos, a scholar with the free-market-oriented American Enterprise Institute think tank, suggested that the Affordable Care Act's 40 percent excise tax on plans that meet the law's definition of high cost, known as the Cadillac tax, should be repealed. However, he said it should be repealed only if it were replaced with a refundable tax credit to help people buy coverage, or by capping the amount of health-care expenses that could be excluded from income tax.

Under current law, “ultimately all employer health plans will exceed what the ACA considers acceptable levels of health-care coverage,” because the Cadillac tax is based on general inflation and health-care costs have been rising faster, Antos said.

Health Insurance Eating Compensation

“The median worker's paycheck has barely increased in three decades but overall compensation has grown,” said Avik Roy, a senior fellow with the Manhattan Institute, also a free-market-oriented think tank. “Most of the growth in compensation has been eaten up by the rise in the cost of health insurance,” with the cost of coverage rising from 11 percent of per capita income in 1996 to 19 percent in 2010, he said.

Roy suggested proposals similar to Antos's, adding that tax credits for the uninsured should be means-tested and they should apply to health savings accounts.

“Hospitals, doctors and drug companies have a powerful incentive to charge high prices here because the exclusion from taxation an employer gets for insurance prevents patients from controlling their own health-care dollars and thereby holding health-care companies accountable for the prices they charge,” he said.

Steven Kreisberg, director of research and collective bargaining services with the American Federation of State, County and Municipal Employees, argued against enhancements for consumer-driven health plans.

The health-care market “doesn't operate like other markets,” and consumers aren't able to choose between health-care providers such as hospitals when they have serious illnesses, he said.

Kreisberg argued that delivery system reform that moves away from fee-for-service payments should be the primary change made to align the incentives of payers with providing high-quality, well-coordinated care.

In addition, he said, other developed nations regulate the price of prescription drugs and the U.S. should too.

To contact the reporter on this story: Sara Hansard in Washington at

To contact the editor responsible for this story: Janey Cohen at

For More Information

Information on the House Ways and Means Committee hearing is at A Joint Committee on Taxation report titled “Exclusion for Employer-Provided Health Benefits and Other Health-Related Provisions of the Internal Revenue Code: Present Law and Selected Estimates” is available at