Fiscal Cliffnotes: Is That Tax Break on Your Job-Based Health Insurance on the Table?

(Karl Eisenhower/Kaiser Health News)

(Karl Eisenhower/Kaiser Health News)

Then-presidential candidate Mitt Romney made headlines when he asserted that 47 percent of Americans were “victims” dependent upon government assistance. I’m guessing he wasn’t thinking of people who receive employer-based health insurance as being the beneficiary of government largess. But, the government loses a lot of money in the benefit.

Here’s how: First, people who receive employer-based health insurance do not pay taxes on its cost. Second, employers deduct the cost of the policies as a business expense.

As the fiscal cliff approaches, some policy wonks are saying the U.S. can’t afford that tax break any more.

As Julie Appleby reports for Kaiser Health News, it’s the largest cost to the U.S. Treasury, “an estimated $246 billion annually, according to Congress’ Joint Committee on Taxation, dwarfing the second-largest break, the mortgage interest deduction, which costs an estimated $98 billion.”

That is a lot of money.

Appleby quotes G. William Hoagland of the Bipartisan Policy Center. He spoke Thursday at a conference sponsored by the Employee Benefit Research Institute. “There’s no way on God’s green earth,” he said “that we will not see that exclusion on the table.”

Of course, ditching the exclusion would be “wildly unpopular” among voters.

The calculus of ending the tax exclusion has changed since passage of the Affordable Care Act, as Appleby explains:

Even if employers were still be able to deduct the cost of paying for health insurance as a business expense, some might drop health coverage if they thought workers valued the benefit less because now had to pay taxes on it.

“In the past, before the federal Affordable Care Act, it was assumed that (changing) the tax exclusion would increase the number of uninsured,” said Hoagland, a former staff director of the Senate Budget Committee and senior vice president at insurer CIGNA. “I would argue that (concern) now goes away,” because the health law provides subsidies to help lower income Americans buy coverage.

At least a few lawmakers might regard changing the tax exclusion as politically easier than reducing payments to hospitals and other medical providers, said Steve Wojcik, a vice president of public policy at the National Business Group on Health, who was also on the panel.

Some economists think that reducing or eliminating the tax exclusion would slow spending on health care because it would prompt employers to choose less generous insurance plans that cost less. Others say the savings would be small. Several attempts to revise or cap the exclusion have failed in the past two decades.

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