Tax Debate

The Senate Finance Committee’s support for taxing some health benefits as a way to pay for health reform has created yet another fault-line in the debate over how to expand health coverage to millions of uninsured Americans. This Health Policy Brief from Health Affairs and the Robert Wood Johnson Foundation brings together experts from the Urban Institute, the American Enterprise Institute, the Employee Benefits Research Institute and the Economic Policy Institute. Together, they explore arguments both for and against such a policy and discuss what Congress may do next.

Supporters of capping the current employer-sponsored insurance tax benefit, which is now enjoyed by 162 million Americans, argue that a tax could provide much-needed revenue to pay for reform. It could also reduce disparities, because those with lower incomes and without employer-sponsored insurance are unable to take advantage of those benefits. Opponents of capping the tax exclusion argue that consumers would purchase cheaper plans to offset the increase in costs from paying taxes on the benefit, which could negatively affect the health of Americans with chronic conditions. Opponents also argue that firms with older workers may bear a disproportionate amount of the burden created by the new tax cap.