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August 2017  Volume 15, Number 8        

GOP Proposal to Tax Employer Health Plans - Pros and Cons

Estimates show that almost half of American private sector employers offer health care insurance to their employees. The Kaiser Family Foundation says the percentage ranges from a low of 34 percent in Idaho to a high of 70 percent in the District of Columbia. The practice is popular because the benefits are exempt from federal, state and city taxes and employers can deduct 100 percent of the costs.

Senate Republicans, while writing an Affordable Care Act (ACA) replacement bill, floated the idea of taxing employer-sponsored health benefit plans. Additional tax revenue from more than 177 million employees would most likely help stabilize the insurance market and bring in billions of dollars for tax reform. The Congressional Budget Office estimates that the federal government “lost” more than $250 billion in 2016 because of the exemption. This money is critical because the new health bill must achieve at least $119 billion in savings through the next decade in order for the bill to pass in the Senate by a simple majority.

The federal government approved the tax deduction for employer-paid health benefits during World War II after it froze salaries to avoid post-war inflation. The government intended the deductions as a temporary measure to give employers an incentive to attract qualified employees. The deduction proved so popular businesses pressured the federal government to keep them.

When House Republicans crafted their version of the ACA replacement bill earlier this year, they considered limiting the amount companies could exclude from employees’ income for health coverage. Rep. Warren Davidson (R., Ohio) said the system distorts the market in favor of generous insurance packages. House Speaker Paul Ryan (R., Wis.) said the current system of tax cuts is unfair to individuals who must purchase coverage on their own. Republicans dropped the idea after facing strong business group resistance.

Experts are concerned that if the tax is implemented, employers will scale back benefits; or pass the cost of the taxes to employees by lowering wages or raises; or stop offering coverage all together. Employers may also decide to offer alternative incentives or increase wages rather than offering health plans. Right now the proposal seems unlikely to move forward. We’ll try to keep you advised.

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In this issue:

This Just In...

HRA Changes That Affect Your Employees

Four Questions to Ask Before Purchasing Dental Insurance for your Employees

Ways to Help Your Employees Have a More Secure Retirement

GOP Proposal to Tax Employer Health Plans - Pros and Cons



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