Currently, the value of health insurance coverage provided
by employers is not subject to payroll or income taxes.
calculations indicate that this is the federal government’s largest tax
expenditure, at a cost of more than $1 trillion over the next five years
(though this also includes the employer deduction of these costs as a business
expense), and the Joint Tax committee has estimated the cost of the tax
expenditure for the employee exclusion for health insurance alone at $659
billion for 2010 through 2014.
panel may seek to cap and/or phase out the health insurance tax exclusion over
time and/or based on the employee’s income level. The National Commission for Fiscal Responsibility and Reform (NCFRR) final report
proposed instituting a cap at the 75th percentile of health insurance premium
levels starting in 2014, with the cap frozen in nominal terms through 2018 and
phased out by 2038.
It is noteworthy that no proposals have been floated to
limit the employer's deduction for its expenses in providing health coverage,
which are currently considered “ordinary and necessary” business expenses under
the tax code.
In conjunction with
limiting or eliminating the tax exclusion for workers, the panel may also seek
to lower the excise tax on employers and insurers for high-cost “Cadillac”
plans. The NCFRR final report recommended modifying the tax from its current 40
percent to 12 percent.
Source: National Business Coalition on Health