The employer-sponsored health benefits exemption represents trillions of dollars in forgone tax revenue, accounting for the tax code's largest exclusion.

For its part, the Trump Administration has vowed to cut the corporate tax rate from 35 to 20 percent and reduce the number of individual tax code brackets from its current seven to just three.

But revenue must be generated in other budget areas in order to offset the losses and justify these cuts. The Congressional Budget Office (CBO) will score any proposed legislation that emerges in the coming months. Tax reform could ultimately be stalled by fears that aggressive tax cuts will swell the deficit – just as health care reform was significantly impacted by the CBO's most recent score of the AHCA.

“There is no way to get the corporate rate down to 20 percent without putting everything on the table,” says Wood. “That includes employer benefits. There will be no sacred cows in that discussion.”

The AHCA's failure to garner the necessary 216 votes needed to pass the House exposed deep ideological fractions in the Republican caucus – and served as a stunning political defeat for the White House.

The failed bill, though, also led to Republicans taking up tax reform, which may make it even easier for them to attack the preferential treatment of employer benefits as Republicans take up tax reform. In failing to pass the AHCA, Republicans left about $1 trillion in ACA taxes on the books. All told, the AHCA would have reduced federal spending by roughly $300 billion over 10 years.

Now, lawmakers will have to look at other ways to offset aggressive cuts to a tax code that was last amended during the Reagan administration.

Employer plan fate pegged to border adjustment tax

The White House has said it intends to use reconciliation rules for the 2018 budget to push tax reform through the houses. This means they could amend the code with a simple Senate majority rather than the 60 votes required for standalone legislation.

But as the industry learned with the AHCA's failure, a fast-track option for reconciliation isn't always as good as it looks.

The same ideologies that divided Republicans – a division that was sharply exposed by the AHCA's struggle – can be expected to cloud the tax reform debate.

Specifically, House Republicans have proposed using a border-adjustment tax – which may raise up to $1 trillion in importation taxes – to pay for tax cuts. The White House has yet to rubber stamp the BAT.

But media reports say the majority of the House's conservative Freedom Caucus opposes the BAT, just as they opposed the AHCA.

Ultimately, the BAT's fate will determine how tax reform treats employer-provided insurance, says Wood.

“That's the bigger issue — what traction will the BAT have?” says Wood. “You can't get anywhere close to a 20 percent corporate rate without it.”

Back to square one for benefits advocates

The most recent attempt to limit the group benefit tax exclusion found immediate resistance after an early AHCA discussion draft included a tax on the 90^th percentile of group premiums. When the legislation was officially proposed, however, the tax was nowhere to be found.

Wood says the CIAB and other benefits and employer advocates pushed back at Capitol Hill once they learned about the draft's intent to tax benefits.

“We raised hell for those two weeks and made a lot of progress educating lawmakers after the discussion draft was released,” he says.

But while the issue of employer insurance taxation will continue to be “politically fraught,” employer market advocates are working blind, without any traditional sources of thought leadership addressing the issue, according to Wood.

“We've lost the conservative and libertarian economic intelligentsia on the exclusion issue,” says Wood.

Over the past decade, more conservative economists have embraced the idea that employer-based insurance adds to health care inefficiencies by making employees bad health care consumers.

By taxing benefits, they say, employees would immediately have more skin in the game. This should make them more judicious about how and where they consume health care, according to conservatives who are pro-benefit taxation.

“The reality is that Speaker (Rep. Paul) Ryan, Rep. (Kevin) Brady and Sen. (Orrin) Hatch — all influential Republicans on tax reform — are on the record in favor of scaling back the tax exemption,” he says. “And (U.S. Health and Human Services Secretary) Tom Price's own proposed legislation would have scaled back the exclusions.”

Pressure for fast reform may be a wild card

As with health care reform, Republicans will be under pressure to reform the tax code as quickly as possible.

Not only has the party committed to a mid-summer timeline, but the loss of a failed AHCA increases the sense of urgency “to ease the political blow,” says Garrett Fenton, an ERISA specialist in the benefits practice of Miller & Chevalier.

“We've always been concerned of the possibility that tinkering with the tax exclusion would rear its ugly head in the tax-reform discussion,” says Fenton. “Congress' task is to get something done quickly. That complicates things when the goal is to effectuate such large changes to the tax code that will be subject to budget constrictions.”

Whatever reforms are proposed, they will come at a big budgetary cost. Health care benefits are now the low-hanging fruit of revenue offset.

“Congress is going to have to find money from somewhere,” Fenton says.

To be clear: No one expects all employer-provided health insurance to be taxed. Still, Fenton predicts that any proposal will meet stiff opposition from employer advocates.

As for Wood and the CIAB, they are bracing for a battle.

“Our message will be clear: Hands off the market that supplies health insurance to 61 percent of the country,” said Wood. “Employers have it difficult enough. We don't want further health care cost shifting onto employer plans.”

If lawmakers aren't willing to hear that message, Wood says the CIAB is prepared to “aim every bit of blunt political impact we can muster if they attempt to tax employer-provided plans.”