Limiting the Tax Exclusion for Employer-Sponsored Insurance Can Help Pay for Health Reform

Source: Paul N. Van de Water, Center on Budget and Policy Priorities, June 2, 2009

Limiting the tax exclusion for employer-sponsored health insurance could provide significant revenues for health reform without eroding employer-sponsored insurance or causing other undesirable side effects — if the cap and the rest of the health reform legislation are well designed.

Limiting the tax exclusion deserves serious consideration for several reasons.

First, the exclusion is poorly designed, providing the greatest benefit to those with the highest income.

Second, the exclusion makes the problem of high and rising health care costs somewhat worse, encouraging employers and individuals to purchase costlier coverage than they otherwise would.

Third, and perhaps most important, the White House has announced that it will insist that health reform legislation be fully paid for. Congress will likely find it difficult to meet this objective unless the bill includes a cap on the exclusion as a significant source of financing. As a result, attaining universal coverage may depend on including a cap in the legislation.

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