By using this site, you agree to the Privacy Policy and Terms of Use.
Accept
Health Works CollectiveHealth Works CollectiveHealth Works Collective
  • Health
    • Mental Health
    Health
    Healthcare organizations are operating on slimmer profit margins than ever. One report in August showed that they are even lower than the beginning of the…
    Show More
    Top News
    bowl of vegetable salad
    Raw Foods: benefits and harms
    November 9, 2021
    pros and cons of the keto diet
    Read This Before You Follow the Keto Diet
    May 18, 2022
    spinal cord injuries
    4 Potential Causes of Spinal Cord Injuries (and How to Seek Compensation)
    May 25, 2022
    Latest News
    7 Most Common Healthcare Accreditation Programs: Which Should You Use?
    August 20, 2025
    Hospital Pest Control and the Fight Against Superbugs
    August 20, 2025
    Hygiene Beyond The Clinic: Attention To Overlooked Non-Clinical Spaces
    August 13, 2025
    5 Steps to a Promising Career as a Healthcare Administrator
    August 3, 2025
  • Policy and Law
    • Global Healthcare
    • Medical Ethics
    Policy and Law
    Get the latest updates about Insurance policies and Laws in the Healthcare industry for different geographical locations.
    Show More
    Top News
    The Hidden Epidemic of Nursing Home Abuse
    February 16, 2021
    Smiles Make the World Go Around
    August 25, 2017
    Those Pesky Tension Headaches
    September 12, 2017
    Latest News
    How Social Security Disability Shapes Access to Care and Everyday Health
    August 20, 2025
    How a DUI Lawyer Can Help When Your Future Health Feels Uncertain
    August 20, 2025
    How One Fall Can Lead to a Long Road of Medical Complications
    August 20, 2025
    How IT and Marketing Teams Can Collaborate to Protect Patient Trust
    July 17, 2025
  • Medical Innovations
  • News
  • Wellness
  • Tech
Search
© 2023 HealthWorks Collective. All Rights Reserved.
Reading: Taxing Employer-Sponsored Health Insurance?
Share
Notification Show More
Font ResizerAa
Health Works CollectiveHealth Works Collective
Font ResizerAa
Search
Follow US
  • About
  • Contact
  • Privacy
© 2023 HealthWorks Collective. All Rights Reserved.
Health Works Collective > Policy & Law > Health Reform > Taxing Employer-Sponsored Health Insurance?
BusinessHealth ReformPolicy & LawPublic Health

Taxing Employer-Sponsored Health Insurance?

Brad Wright
Brad Wright
Share
6 Min Read
taxes and healthcare
SHARE

taxes and healthcare

taxes and healthcare

Well, we’ve come to the end. This is the final post in the multi-part series on the Burr-Hatch-Upton proposal known as the Patient CARE Act. This one is all about taxes. Specifically, it’s about repealing all of the taxes introduced under the Affordable Care Act (ACA), and introducing new taxes to replace them. The focus of the proposal is on “a distortion in the tax code–the unlimited exclusion from a worker’s taxes of employer-provided health coverage.” The proposal underscores that this is “important because economists across the political spectrum largely agree that the current distortion in the tax code helps to artificially inflate the growth in health care costs.” They’re right. It does.

During the second World War, there was a shortage of workers, and Congress also enacted a wage freeze that made it difficult for employers to compete for the limited supply of employees by paying them more. They found a loophole though. By offering employees benefits, including health insurance coverage, firms were able to recruit good workers. After a few years, Congress passed a law making these health insurance benefits tax exempt for both the employee and the employer. Making employer-sponsored health insurance tax exempt is akin to subsidizing it (from the government’s perspective), and it resulted in people purchasing more health insurance than they might have otherwise. Then, having the additional insurance, they became more likely to utilize health care and utilize more of it, which fueled the increase in costs in two ways: First, insurance shielded people from actual prices, so prices increased more rapidly than they would have otherwise. Second, utilization increased. Health care expenditures are simply the product of prices and utilization.

More Read

The Doctor Becomes The Patient: Lessons Learned From Wearing A Gown
The Medical Conspiracy of Silence
Health Care Spending: Why Immigrants Aren’t the Problem
Economists on the Left Discover … Well … Economics
Why We Need to Address Racial Disparities in Maternal Health Care

To address this issue, the ACA instituted the so-called “Cadillac tax” which, as the Burr-Hatch-Upton proposal states “imposes an across the board 40 percent excise tax on the benefit plans above its stated limit regardless of an individual’s income.” This tax is charged to insurers (or employers in the case of self-insured firms) in hopes that they will stop electing to provide such generous health insurance coverage. Of course, there is nothing to prevent an employer from passing these costs on to their employees, but it seems like they’d probably not want to touch their wages and would first elect to scale back their benefits. By contrast, the GOP proposal “caps the tax exclusion for employee’s health coverage at $12,000 for an individual and $30,000 for a family.” These amounts are indexed to the consumer price index plus 1 percentage point to account for inflation.

So, looking at these two options side-by-side, we have the current law, which charges insurers a 40% tax for overly generous insurance plans to discourage their issuance, and we have a proposed law that would require any individual whose insurance coverage costs more than $12,000 (or $30,000 for family coverage) to pay taxes on the amount of coverage above those levels as if it were income. What this guarantees is a shift in the tax burden from the insurer to the employee. Therefore, the proposal’s claim that “middle-class families with employer-sponsored coverage would fare better under our proposal than under ObamaCare” is not true. In the worst case scenario, the Cadillac tax and the cap on tax exempt benefits are practically synonymous, with the primary difference being that the GOP proposal actually raises the level for tax exemption (or thought of differently, it keeps the Cadillac tax, but raises the threshold for what is defined as a Cadillac plan).

The other distinction is that the Cadillac tax is a flat tax (40%) of the value of the plan–therefore it treats all expensive plans equally. Meanwhile, the GOP’s proposal taps into the progressive income tax structure of the United States. This means that on the one hand, wealthy individuals will pay a higher tax rate on the amount of their plan’s value above the threshold, but it also means that, on the other hand, they are getting a bigger tax break on the amount of the insurance that they are getting tax-exempt. The reality is that most lower income people will not likely have an individual plan that costs $12,000, whereas higher income earners very well could. Thus, you have a situation wherein the low income person gets a tax break on their $5,000 policy, which saves them from paying their lower marginal tax rate on that $5,000, while the high income person gets a tax break on their $12,000 policy, which saves them from paying their higher marginal tax rate on that $12,000. Which is a bigger benefit: 10% of $5,000 or 35% of $12,000? You do the math.

Taxes & healthcare / shutterstock

Share This Article
Facebook Copy Link Print
Share

Stay Connected

1.5kFollowersLike
4.5kFollowersFollow
2.8kFollowersPin
136kSubscribersSubscribe

Latest News

engineer fitting prosthetic arm
How Social Security Disability Shapes Access to Care and Everyday Health
Health care
August 20, 2025
a woman explaining the document
How a DUI Lawyer Can Help When Your Future Health Feels Uncertain
Public Health
August 20, 2025
physiotherapist at work
How One Fall Can Lead to a Long Road of Medical Complications
Health care
August 20, 2025
Common Healthcare Accreditation Programs
7 Most Common Healthcare Accreditation Programs: Which Should You Use?
Health News
August 20, 2025

You Might also Like

Creating Effective Partnerships With Patients

October 30, 2012
Image
BusinessGlobal HealthcarePublic Health

4 Reasons Substance Abuse is Driving up Healthcare Costs in 2017

April 13, 2017
spacer
Hospital Administration

Hospital of the Future? Chaum Life Center for Personalized Medicine

September 23, 2011

More US Pharmaceutical Industry Downsizing

December 8, 2014
Subscribe
Subscribe to our newsletter to get our newest articles instantly!
Follow US
© 2008-2025 HealthWorks Collective. All Rights Reserved.
  • About
  • Contact
  • Privacy
Welcome Back!

Sign in to your account

Username or Email Address
Password

Lost your password?