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Changes to the Tax Exclusion of Employer-Sponsored Health Insurance Premiums: A Potential Source of Financing for Health Reform

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Publication Date: June 2009

Publisher(s): Tax Policy Center

Author(s): Lisa Clemans-Cope; Stephen Zuckerman; Roberton Williams

Special Collection: John D. and Catherine T. MacArthur Foundation

Topic: Banking and finance (Taxation and tax policy)

Keywords: Employment; Wages and Non-wage Compensation; Fiscal future; Tax Distribution and Economic Trends

Type: Report

Abstract:

Many have suggested that reducing or eliminating the tax exclusion of employer-sponsored health insurance (ESI) could generate significant additional tax revenue to fund expansions in health insurance coverage. In this paper, we focus on two specific policy design elements: (1) a cap, or dollar limit, on the amount of employer-sponsored health insurance premiums excluded from taxable income; and (2) an index that determines how this cap might grow over time. Our analysis shows that limiting the tax exclusion would provide substantial funding for health reform and mitigate the huge inequities built into the current treatment of employer premiums.