Eliminating the tax exclusion on employer-sponsored health insurance at the 75th percentile would raise $264 billion in new revenues from 2014 through 2023, according to a study by the Urban Institute.
The study was funded by the Robert Wood Johnson Foundation, which said taxing employer-sponsored health coverage “is likely to be debated in earnest” as federal budget and deficit reduction negotiations continue. According to RWJF, subsidized employer-sponsored health coverage is the largest federal expenditure by far, reducing federal tax revenues by $268 billion in 2011 alone.
The Patient Protection and Affordable Care Act includes a 40 percent excise tax on generous health insurance, dubbed Cadillac plans, that exceeds $10,200 per individual and $27,500 per family, but that doesn’t begin until 2018. The scenario the report explores would begin in 2014 and be calculated on the sum of premiums and other medical benefits, indexed by the five-year average of the rate of gross domestic product growth.
The study used 2011 as the example year, saying the 75th percentile premium for the private sector would fall at $6,100 and $18,000 for employee-only and family coverage, respectively.
If the model were instituted in 2014, 15.7 percent of taxpayers would experience a tax increase averaging $633 that year, rising to 20 percent and $1,133 by 2023. The change would affect public-sector employees to a greater extent than private-sector employees, the report says. It notes that the model would preserve 93 percent of the tax subsidies currently available, and that it would have “minimal impacts on those with lower incomes.”