Think tank with Republican ties proposes employer health tax exclusion limit
Paragon recommends capping the exclusion at 125% of the national average value.
Health policy specialists at a think tank with strong Republican ties say capping the current unlimited federal income tax exclusion for employer-sponsored health benefits could improve the U.S. health care system.
The Paragon Health Institute has included a health benefits cap proposal in a new health tax policy paper written by Theo Merkel and Brian Blasé.
Blasé is the institute’s president, and Merkel is a senior research fellow there. Both worked for the White House National Economic Council during the Trump administration.
Merkel and Blasé are recommending that, if policymakers ever reform the Internal Revenue Code, one idea to consider would be limiting the health benefits tax exclusion to 125% of the national average cost of health coverage, adjusted for the employees’ age and the cost of coverage in the employees’ location.
The health benefits tax exclusion distorts the U.S. health care market less than the Medicare or Medicaid programs, but, “in a vacuum, the flaws of the tax exclusion for [employer-sponsored insurance] are pronounced,” Merkel and Blasé write.
The exclusion costs the federal government $345 billion in tax revenue, and it drives up U.S. health care prices, by causing workers to have richer benefits than they would buy on their own and insulating health plan enrollees from the true cost of care, the policy specialists add.
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The policy specialists would prefer to see Congress focus on efforts to improve the health savings account and health reimbursement arrangement programs and to reduce all kinds of taxes, so that workers have more cash and can do what they like with their extra cash.
Merkel and Blasé also include a key number for health account watchers: a conjecture about the number of U.S. workers who get their health benefits from individual coverage health reimbursement arrangements or from qualified small employer health reimbursement arrangements.
About 500,000 people likely have ICHRA-based or QSEHRA-based health coverage, the policy specialists estimate