10 2 5 3 4 6 7 8 9 . “The Future of Employment-Based Health Benefits: Have Employers Reached a Tipping expected to reduce the u governm Mr. Chairm $10,000 were to cut back on use by Fairness Individuals are able to deduct eof the Exci nt revenue foregone due to its tax tr •an and m The threshold for triggering the excise s se e Ta mbers of the caucus, than se of x health care s 20 percent (a potentially large reduction in use for a person frome taxable incom rvices. Savings from eatm k you for the opportunity to appear before you ent—are large and vary depending upon the tax would be increased to $8,900 for e contributi lower prem ons made to a health savings iums are then T-163 Point?” EBRI Issue Brief no. 312, December 2007. source. During FY 2009, the U.S. Joint Tax Comm with a chron expected to increas account (HSA), if they have h today. My nam Group Composition T The excise ta ic condition e is Paul Fronsti e worker wages, thereby in x x has been ), out-of-pocket expens —Prem ealth insurance with an annual a a n. I am director of the Health ssociated ( iums may be over th o or confused) cres easing taxable incom will fall by $200 at 10 p ittee (2008 e excis with a tax deductible of at least $1,200 for Research and Education Program e ) estim tax thresho o on so-called e a and generating part of the tes that $147 billion was elrcen d not coins “ “ t becaus Cadilla urance, e c” of the p plans, individual coverage and $24,000 for family coverage. individual coverage or $2,400 for fa and $400 at 20 percent coinsurance. com $149 billion to pay for health reform at the Em not collected in tax revenue due to the tax treatm meaning prehensiveness of insurance but instead health plan ployee Benef s s that provi it Research In d de unusually An i m . The other stitu ily coverage. te (EBRI). mportant question to as because of the compos comprehen en part of the $149 billion would com t of heal In order to m I am s sive covera ple th benefits and ased to app k is whether the $200 or $400 is ake tax-free contributions to an ition of the group an g ge. Th ear bef e exci health care. It also ose tax woul re yo e fr u today to om the d d • Separate costs for dental and vision coverage would not be included in the . “Capping the Tax Exclusion for Employment-Based Health Coverage: Implications for HSA, the health plan m a large enough annual savings to reduce use of serv individual belongs to. Insurers predicts that $799 billion would not be collect excise tax on coverage that doe testify on health coverage and taxation for Am apply to h health plans with an ag ust also im can and often do charge higher prem s not change to g gregate valu pose a $5,950 m e e abo ed over 2008–2012. In contrast, the Offi erica’s workers. Established in 1978, EBRI is avoid the tax. ve the aices by 20 percent for a person with a chronic ximu s sm out-of-pocket lim et threshold d ium s reg s for the same benefits ardles it for individual s s of the ce of Employers and Workers.” aggregate value of coverage starting in 2015. EBRI Issue Brief no. 325, January 2009. coverage, and an $11,900 lim condition such as diabetes. If comm Managem package to groups with higher-than-expected expe determ itted exclusiv in nants of the ent and Budget estim ely to data dissem a aggregate va it for fam a person with diabetes does not ch ates that health be lue. There GOP Doctors Caucus ination, policy ily coverage. a are a nu nefits will account for $174 billion in f nses than to groups wi mbe There are other restrictions as well. research r r of reasons , and education on financial s ange his or her use of — — coth lower-than-expected mpletel ly independ health oregone ecurity e ent • Coverage for state and local government employees and collectively bargained Fronstin, Paul and Ruth Helman. “Small Employers and Health Benefits: Findings from the 2002 Small Regardless of who contributes to care as a res Implication and em expenses. This could translate in tax revenue during FY 2009 and $835 billion ove of the co ployee benefits. Consiste m mpr u sehensiv of the Excise Tax lt of the ex e eness cise tax, of the coverage— the account, annual contributions health care cos nt with our m to one firm w w paying higher taxes becaus hy health ission, EBRI does not ts will r 2008–2012. According to the Congressional not be affected, and the long i insurance pr are tax free for the individual em lobby or advocate specific ium e their prem s in a a fu-h lly insur eld hope of ium is e ed plans would be exempt from the excise tax until 2018. Employer Health Benefits Survey.” EBRI Issue Brief no. 253, January 2003. econom who owns the account, up to a lim policy recommendations; the m Budget Offi above the ex plan or tists that tax h he vce (2008), incom a cise tax th lue of ing high-cost p h health cover reshold sim e tax revenue w ission is to pr a age in a sel it of $3,050 fo l pan ly because s will reduc f f- -ould increase $108.1 billion during 2009–2013 if ov insured pla th ide objective and reliable research and r individual coverage and $6,150 for fam e workers employed in that firm e total health spending, an n n would be a above the ta d increase w x x were less cap. The ages, ily c cost • Gender and age adjustments would be adopted. Moving Away From Comprehensive Benefits Fronstin, Paul, and Dallas Salisbury. “Health Insurance and Taxes: Can Changing the Tax Treatment of coverage. T could be proven wrong. the tax exclusion were lim inform healthy or older than the average group. Hence, of health ation. All of our research coverage is hose ages 55 known to v and older can m ited, and $205.7 billion if it is available on the Internet at ary with fa ike “cat rm m size, em two e ch-up” contributions to an HSA as well. In m were replaced with a re pployers in the sam l loyee health www.ebri.org statuse , aver industry, in the sam All views expressed fundable tax credit. a age age of th he e The use of health care is different than Health Insurance Fix Our Health Care System the consumption of other goods and services. ?” EBRI Issue Brief no. 309, September 2007. 2010, a $1,000 catch-up contribution was allowed. Unus are m city, offering the sam group of y own, and should not This testim “Implications of the Excise Tax employees, ony exam and geogra e health coverage could pa be attributed to EBRI. ines im p phic region. plications related To the deg y different taxes on the benefits (with one subject on High-Cost Health Plans in the to the excise tax in H.R. 3590. It first r ree th ed balances in an HSA grow tax free, at indiv viduals face higher taxes s as a The tax would be imposed on insurers, rather than on the employers offering coverage. Most people are healthy and do not use a lot of health care. It is well established that roughly 20 In a num and distributions from summarizes the current tax treatm to the ex Gabel, Jon R. “Job-Based result of Changing the tax treatment of em cise tax and th ber of studies, researchers have noted the these factors s viol an HSA are tax free when e other no Health Insurance, 1977 ates the et seeing any chan pri ent of health co ncipl ploym e o of “horizont –1998: The Accidental Sy ent-base used for qualified m ve ge negative rage. It then presents in tax d health coverage has been a policy goal a al” e e effects of increased cos s) sim quity ( pC C ly because of the health s ongression stem edical expenses and certain detailed inform Under Scr a al Bu tu sdget O tiny haring on .” ation on Health f ffice, tatus In the case of a self-insured plan, the tax would be paid by the plan administrator. When the 4 th percent of the population uses roughly 80 percent of the health care services provided in any Affairs Vol. 18, no. 6, November/December 1999: 62-74. patients’ compliance with prescrib prem the excise tax provision in H.R. 3590. of m of the workers at the firm. 1994). aium ny De s. mocrats and Republicans ed drugs. They have found that wh as far back as the 98 Implications are then presented. Congress, when Ronald Reagan was ile increased cost sharing is Patient Protection and Affordable Care Act (H.R. 3590)” employer self-administers the plan, the tax would be paid by the employer. given year. The bulk of the money goes toward treating people with chronic conditions, such as effective in reducing drug costs, it can also re president (F For individuals who do not receive employm F Firm size— ronstin, 2009). Proposals have generally Th he cost of pr roviding hea alth cov sult in higher spending fo ee rag taken the for nt-b e e varies by ased health benefits m fi fi of either capping the incom rm r other m size. S , to m m e tal hea dical services, all emlth ca ploye errs e e Gabel, Jon, Jerem The tax would be allocated pro rata among y Pickreign, Roland McDevitt, and Thom the insurers and plan adm as Briggs. “Taxing Cadillac Health Plans May inistrators. heart disease, cancer, lung disorders, mental health, hypertension, and diabetes. With the obesity expenses (in Current Tax Treatmen such as em tax exclusion or creating a tax cr pay mor A recent s e e than larg ergency-room visits and non-electiv cluding p tu e dy exam e employers rem t of Hea iums) are deductib ined the determinants of fo fo edit both for persons with and lr identical th Insurance le o h health cove e hospitalizations as a result of decreased nly if they exceed 7.5 percent of adju variation in prem r rage. Sm without em all em iums ployers t ploym (Gabel, et al., 20 e eent-based health nd to provi sted gross de 10). Produce Chevy Results.” Health Affairs Vol. 29, no. 1, January 2010: 174-181. Employers would be responsible for calculating the amount subject to the tax allocable to each rate in the U.S. at one-third (it was 15 percent in the mid-1990s), the incidence of these diseases incom m coverage and those in th The study found that only about 4 pe less com edication com e (AGI), and only the am The tax treatm p prehensive pliance (Hsu, et al., 2006). In ot c cov ent of heal erage th e nongroup (individual) m ount that exce a ath benefits has been n large em rcent of the variation in prem ployers an eds 7.5 percent of AGI her words, higher cost sharing can and does arket. form d e even when t ed in the tax code through a series of ium h his deductible. This ey do they s could be attributed to p pay more on n insurer and plan administrator and for reporting these amounts to each insurer and plan Hacker, Jacob S. The Divided Welfare State: The Battle over Public and Private Social Benefits in the will only increase. The unanswered question is whether a tax on high-cost plans that reduces the deduction is allowed only when an individual item reduce health-care spending, but in som laws and rulings that date back to the 1920s. differences in benefit design. Also affecting va average A tax cap was proposed by the Reagan adm t than large em mployers. O On average i e cases, n n 2006, em Historians often suggest riation in premium it reduces beneficial iizes deductions on his or her tax return. This nistp ration in S. 640, and tax credit bills have loyers with s we f fhealth-care spending on ewer than that the tax-preferred re industry and underlying 1 10 employee es administrator. Each insurer and plan administrator would then be responsible for calculating, United States. Cambridge University Press, 2002. comprehensiveness of plan design will reduce spending on health care services among the deduction is not widely u been introduced over the years by Democrats and Re status of em prescribed m m paid $4, edical costs in the region. The study was unable to 4 498 for e ploym edications and preven ment-based health benefits pl loyee-only c sed, becaus ovtive services. A num erage, w e the standard led to the rise in its prevalence and h hereas em deduction is publicans, and in some cases, bills were co- account for variation in plb o oer of em yers with 1 larger than the sum ployers and health plans have ,,000 or m the health status of ore e em of item ployees ized paid reporting and paying the tax to the IRS. chronically ill. For example, take the case of diabetes: The average annual cost per case reached Thursday, January 21, 2010 Hsu, John, Mary Price, Jie Huang, Richard Brand, Vicki Fung, Rita Hui, Bruce Fireman, Joseph P. health deductions for m sponsored by both. Cunningham com recognized these suboptim workers, which would explain far m $4,066 ( prehensiveness. Claim F Figure 2). Smao lle st taxpayers, and m r em al behavioral effects, s have been m pl loyers face (2002) describes wh ore of the variation in prem ade that h h oigher costs st do not have deductible medical expenses that and have begun to explore ways to counteract employm at has becom f for coverag ent-based health benefits grew out of iumes e e the “joint custody” of tax . than larger employers Using the thresholds from the reported agreed-upon White House/congressional nearly $10,000 for diagnosed diabetes in 2007 (D Newhouse, and Joseph V. Selby. “Unintended Consequences of Caps on Medicare Drug all, et al., 2010). Such an average individual Internal Revenue Service (IRS) exceed 7.5 p credits am them because , either by excludin t they do not ong De ercenm t of AGI. In 2001, about one-third oh h crats and Republicans. Form ave the sa g the cos rulings during the m mte purchasi of preventive n ng power as services from plan deductibles, by adjusting er Sen. Ll 1940s rendering em of all in l larger oyd Bentsen (D-TX) was a principal dividual incom emplo oyers, and s ployer contributions for e tax retu m maller em rns had plo oyers leadership compromise, for an employee electing family coverage under a fully insured plan with would incur various am Benefits.” New Englan ounts of out-of-pocket expens d Journal of Medi 8:30 a.m cine. Vol., 35 . es depending on the level of deductible and 4, No. 22 (June 2006): 2349 -2359. health insurance tax item architect of health insurance ta copaym do not r ized deductions, but only 17 percent of Mr. Chairm e e ent amounts by the value of the services, as alize the sa an and m - m m exempt for workers and e econom embers of the caucus, x credits enacted during the first ie es of scale ithese claim n ntax deductible for em the purcha I com opposed to just the costs, or by rewarding esing of heal d a m mend you for exploring these topics, and edical expense deduction, Bush adm ployers (Gabel, 1999), and t th coverage. inistration in 1991. In As a result, a value of $25,000, the amount subject to the excise tax would be $1,000 ($25,000 less the coinsurance. For example, an individual with a deductible of $500 and coinsurance of 10 that the tax-exem accounting for about 6 percent of 1999, then-House Majority Leader Dick Arm good health behaviors (C Lyke, Bob. “ workers e employed a Tax Exclusio pt status of health benefits ha t t small f n of Em hernew et al., 2007). irm ploy s s would be all tax returns (Lyke, 2005). Ther er-Provided H m more likely t ey (R s encouraged employers to offer coverage and to ealth Insurance: Policy -TX) and ranking W o o pay an exc c e is one exception to the 7.5 ise tax on h Issues Regarding the Repeal ays and Means De e ealth cover ma a oge crat thank you for the opportunity to appear before you today. threshold of $24,000). The employer would report $1,000 as taxable to the insurer, which would Capitol Congressional Meeting Room South percent would pay $1,450 out of pocket on $10,000 worth of health care, whereas an individual Debate.” CRS Report for Congress. Congressional Research Service, Library of Congress, provide m percent AGI rule, however: Contri Pete Stark (D-CA) jointly endorsed tax than wor rkers at larg ore comprehensive coverage than th e er firms, even n when the butions to an HSA are fully de credits on the opinion page of the a act ey otherwise w ual health h insuould have (S rance ductible from c coverage is t W hiels and Haught, ash taxable incom in h hgt e sam on Pos e. T t, h h but e e calculate and remit the tax to the IRS. The tax would amount to $400. with a $2,000 deductible and 20 percent coinsurance would pay $3,600 out of pocket (Figure 1). November 21, 2008. 2004). However, it was not until their proposal went nowhere (Arm and are not subject to th Inciden difference of the Excise Tax c ce in cost of coverage m e 7.5 percent AGI threshold. a athe Revenue Act of 1954 that the y be solely ey and Stark, due to firm 1999). Also in 1999, Stuart Butler of the size and mInternal Revenue Code m ay y have nothi ing to do wit ta h de In the case where there are reimbursements from an FSA of $2,000 in addition to the Testimony by it clear, after a num conservative Heritage Foundation and David Ke the comThe incidence regarding who pays the tax is p prehensivenber of conflicting IRS ruli e ess of the cov verage. ngs prom ndall of the (De an important issue. Insurers and plan pted Congress to dem mocratic) Progressive Policy and a blanket Miller, M. “Health Care: A Bolt of Civic Hope.” Atlantic Monthly (October 2000). medical example above, the aggregate value of the plan would be $27,000. The amount subject Figure 1 exception, that em Institute m Excise Tax Provisions in H.R. 3590 adm inistrato ade a joint proposal, as did Reps. rs (in the cas ployer spending on em e of self-insured ar ployee h rangem Jim McCrery (R ealth benefits was not counted as employee ents) would be respons -LA) and Jim McDer ible for rem mott (D-W itting the A) www.theatlantic.com/issues/2000/10/miller.htm (6 August 2002). to the excise tax would be $3,000 ($27,000 less the threshold of $24,000). The employer would Paul Fronstin, Ph.D. Out-of-Pocket Spending by Cost Sharing incom in 2000 (Butler and Kendall, 1999, and Miller, 2002). References tax to the IR e (Hacker, 2002). The Patient Protection and Affordable Care S. However, there is every reason to believ Act (H.R. 3590), passed in the Senate on e that insurers will try to recoup the tax report $2,778 ($3,000 x $25,000/$27,000) as taxable to the medical insurer, for a tax of $1,111, Selden, Thomas M., and Bradley M. Gray. “Tax Subsidies For Employment-Related Health Insurance: and Total Use of Health Care Services Figure 2 Dec. 24, 2009, would impose an excise tax on high-c and they have a num Currently, employers can deduct from taxable The second President Bush twice proposed tax cr ber of ways to do so. ost health coverage. Coverage with an corporate inco edits as an alternative to the current tax me the cost of providing Director, Health Research and Education Program which would then remit the excise tax to the IRS. If the employer uses a third-party Estimates For 2006.” Health Affairs. Vol. 25, no. 6 (November/December 2006): 1568–1579. Butler, Stuart, M. and David B. Kendall. “Expanding Access and Choice for Health Care Consumers Averag ge Total Em mployee-Only Premium m at $10,000 in Health Care Use treatm health benefits as a business expense. This m aggregate value above $8,500 for individual covera ent of health benefits, Insurers could simply bill em but during the 2007 State of the U ployers for eans that whatever an em the tax, much like consum ge and $23,000 for fa nion address he proposed a ployer spend mers pay a sales tax on ily coverage would be s on health administrator for the FSA, it would report $222 ($3,000 x $2,000/$27,000) as taxable to the FSA through Tax Reform .” Health Affairs (Nov./Dec. 1999): 4 Coinsura 5–5 nce 7. Private-Se ector Establishments, b by Firm Size e, 2006 Sheils, John, and Randy Haught. “President Bush’s Health Care Tax Deduction Proposal: Coverage, Cost insurance or health benefits on “standard deduction for health insu subject to th the consumption of m e excise tax. ost goods and services. In The aggreg Employee Benefit Research Institute (EBRI) behalf of workers is consider rance” which ate value of a plan would not onl would act more like this case, the tax would not be com ed a business expense—just as a tax cap than a tax credit. y include the cost of bined with administrator, for a tax of $89. If, instead, the employer self-administrates the FSA, the Deductible 10% 20% $4,600 0 and Distributional Impacts.” The Lewin Group. www.lewin.com/NR/rdonlyres/B45E2670-8A65- Chernew, Michael E., Allison B. Rosen, and A. Mark Fendrick. “Value-Based Insurance Design.” Health wages and salaries are a business expense. In During the 2008 presidential election, Sen. John m the prem edical coverage (prem ium but billed separately. T iums paid to insurers or here is precedence for passing along a tax in this way, such other words, employers get the sam the value of self-insured health benefits) but McCain proposed a tax credit for health e deduction in $500 $1,450 $2,400 employer would remit the $89 to the IRS. $4,,498 4817-B68B-83B818616DDF/0/BushHealthCarePlanAnalysisRev.pdf, 2007. Affairs. Vol. 26, No. 2 (2007): w195 -w203. 1,000 1,900 2,800 calcu insurance. Sen. Max Baucus (D-M would also include premium as the 9-11 security tax imposed $4,50 lating taxable co 0 0 rporate income when they s for ancillary benefi on airlines. Consum T) released his vision for heal chose to provide com ts, such as dental, visi ers are getting used to seeing such taxes th reform pon coverage, and other ensation in the for in Nov. 2008, and in m of It is important to point out that adding the FSA to the medical plan would increase the tax 2,000 2,800 3,600 U.S. Joint Committee on Taxation, Estimates of Federal Tax Expenditures for Fiscal Years 2008–2012, health benefits as they do for wages and salari supplem the last section of the paper st broken out from entary coverage, the cost of purchasing the produ reimates that “Congress should explore bursements fromes, and they should therefore be indifferent from flexible sp ct. However, the key difference between the ending accounts and health ways to restructure the current Congressional Budget Office. The Tax Treatment of Employment-Based Health Insurance. March 1994, to the insurer even in the absence of a change in premiums paid to the insurer. In some cases, $4,400 0 $8,000 in Health Care Use 2008, www.house.gov/jct/s-2-08.pdf. an incom tax incentiv reim proposed excise tax and taxes seen by consum bursement arrangem e tax point of view between provi es to encourage m ents, and employer cont ore efficient spend ding health benefits or cash wages. ers is iributions to health savings accounts. The ng on health and to target our tax dollars m that the excise tax would be collected from ore www.cbo.gov/ftpdocs/95xx/doc9527/1994_03_TaxTreatmentOfInsurance.pdf adding the FSA to the medical plan would trigger a tax on the insurer that the insurer would have Coinsurance 1 effectively and fairly.” difference b employers Employers do, however, get a break on payrol after etween the aggregate value and the thre they have already paid the prem Baucus ruled out conversion ium. sholds above would be ta l taxes when compensation is provided in of the current tax treatm xed at 40 percent. ent of $4,300 0 otherwise not incurred in the absence of an FSA. Deductible $4,241 10% 20% Congressional Budget Office. Budget Options, Volume I – Health Care. December 2008, the f The excise tax thresholds would be indexed to em ploym orm Once the tax is billed back to the em of ent health b -based health benefits to a tax deduc enefits instead of wages and salaries. They do not pay the 6.2 percent payroll ployer, CP tion or tax credit as an approach that would go I-U plus 1 percentage point and would take the employer would have to decide if and $500 $1,250 $2,000 www.cbo.gov/ftpdocs/99xx/doc9925/12-18-HealthOptions.pdf $4,200 0 Endnotes 1,000 1,700 2,400 tax for Social Security for workers w effect on Jan. 1, 2013. too far, as it would “disrupt” em how to pass the tax along to workers. The em ploym hose inco ent-base pl m d benefits, but he does suggest m oyer could reduce the comprehensiveness of the es are below the Social Security wage base, ore targeted Why Cap the Health Exclusion? $4,11 18 $4,112 3 Cunningham, Robert. “Joint Custod 2,000 y: Bipartisan Interest Expands Scope Of Tax-Credit Propo 2,600 3,200 sals.” which was set at $106,800 in 2009. reform plan in order to lower prem s, suc There would be a num h as a tax cap. iums to avoid the ber of exem They also do not pay the 1.45 percent payroll tax for ptions to excise tax. The employer could reduce wages or the excise tax. The threshold amounts would $4,066 6 The theory behind capping the health exclusion rests on the assumption that, because of 1 $4,100 0 Source: Employee Benefit Research Institute. Health Affairs Web Exclusive. September 18, 2002. $4,035 See http://finance.senate.gov/healthreform2009/finalwhitepaper.pdf. be $1,350 higher for individual coverage and $3,000 hi Medicare for all levels of wages. Employer savi slow wage growth. The em The recently passed Senate bill, th ployer could cut othe e Patien ngs related to the Social r benefits, delay hiring t Protection and Affordable Care Act (H.R. gher for family coverage for retirees age a potential worker, or Security and Medicare the tax-preferred status of employment-based health benefits, workers prefer health benefits over http://content.healthaffairs.org/cgi/content/full/hlthaff.w2.290v1/DC1 $4,000 0 55 and older and not yet eligible for Medicare 2 payroll tax savings accounted for about 3590), would im even lay off a worker to pay the tax. How e pose an excise tax on high-cost health coverage. $73 billion in 2006 (Selden and Gray, 2006). mpl , for workers engaged in certain high-risk oyers deal with the tax is a very personal Coverage with an aggregate cash wages—and because of this preference for health benefits, they are “over-insured” and http://cbo.gov/ftpdocs/108xx/doc10868/12-19-Reid_Letter_Managers_Correction_Noted.pdf A valid question to ask is whether moving to higher deductibles and coinsurance will get a Dall, Timothy M. Yiduo Zhang, Yaozhu J. Chen, William W. Quick, Wenya G. Yang and Jeanene Fogli. occupations, and for workers em value above $8,500 for individual coverage and $23,000 decision, given the circum With respect to workers (including the se stances of the labor for ployed to repair or install ele lf-em ce, and will vary from ployed), the amount that employers for fam ctrical ily coverage would be subject to or telecommunications lines. employer to employer. therefore use more health care services than they otherwise would. The theory holds that person to reduce their use of hea $3,900 0 lth care services. The appropriate comparison is not the out-of- 3 “The Economic Burden Of Diabetes.” Health Affairs, published online January 14, 2010, Sim contribute toward health benefits the excise tax. The CBO estim W Em ith 10 percent unem ilarly, the threshold amount is initially 20 pe ployers do not get a tap x loym break ent curr onates that the S is generally excluded, without lim ocial ently, the ex Security excise tax will generate $149 billion during 2010– taxes fo rcent higher in the 17 st pect r wo ation is that workers will ultim rkers whose incom it, from taxable incom es are above ates with the highest the ate wa ly bear the ge base, e. In workers over-insure because health insurance premiums are not included in taxable income, but pocket expense difference between the lower and higher cost sharing amounts. Instead, the 2 http://content.healthaffairs.org/cgi/content/abstract/hlthaff.2009.0155 since the portion of their income that is above the wage base is not subject to the Social Security tax. health care costs, but this pr addition, workers whose em 2019. burden of the tax through lower wages. As of this writing, the W ovision w ployers sponsor flexib hite House and congression ould be phased out by 2015. le spending al leaders app accounts (FSAs) are able to pay ear to have reached an $3,800 0 out-of-pocket spending on health care services is usually not deductible from taxable income. The v appropriate com iews expressed in th parison is out-of-pocket spendi is statement are solely those of Paul Fro ng differences between the lower and higher nstin and should not be attributed to the Employee Benefit for out-of-pocket health care expenses with pret agreement to increase these thresholds to $8,900 The House of Representatives Affordable Employers could also decide to drop benefits ax dollars, meaning they for individual coverage and $24,000 for fa Health Care for America Act (H to avoid the tax. Th are not taxed on the is would enable their .R. 3962), mily Employee Benefit Research Institute. “Tax Reform and Employee Benefits.” EBRI Issue Brief no. 59, 4 Total Fewer tthan 10 10–24 25–99 100–999 1,000 or m more Research As a result, workers pref Institute (EBRI), the EBRI Educa er comption rehensive insu and Research Fun rance with lo d, any of its prog w cost-sharing. Ultim rams, officers, trustees, sponsors, or oth ately, it is er health care use amounts. As an example, if coinsurance was 10 percent, reducing the use of The principle of horizontal equity is violated when income tax changes do not treat people of similar positions passed on Nov. 7, 2009, has no such provi coverage, and to have changed ot am emount of ployees to qualify for coverage October 1986 money that is put into the FSA. . her aspects of what was passed through the insurance exchange. sion to tax high-cost health pl Employers can also mby the Senate. More detail on ake available a prem ans. However, as part of ium staff. The Employee Benefit Research Institute is a nonprofit, nonpartisan, education and research organization established in argued that low cost-sharing, or the ability to pay out-of-pocket spending with pre-tax dollars, equally. See Congressional Budget Office (1994) for a more detailed treatment of how capping the tax exclusion of health care services from $10,000 to $8,000 (a 20 percent decline in total use of services) would a com the excise tax is below. conversion arrangem Washington, DC p So rom urce: www.m ise in m , in 1978. ee e rging the House and Senate EBRI ps.ahrq.gov/ ent, which allow does not m m ta epsweb/data ke pos licy worker positions _ _stats/summ_ s to pay their share , n bills, the W or does itttables/insr/nat lobb h yite House an , advocate specif of the prem iional/series_1 d congress ic pol ium icy //200 for recom 6/tic1.h io m neal leaders ndat tm ions, or health benefits improves horizontal equity when measured in terms of income. leads to overuse of health care services, which drives up insurance premiums and makes Fronstin, Paul. “The Tax Treatment of Health Insurance and Employment-Based Health Benefits.” EBRI save an individual $200, regardless of the level of deductible. Similarly, if coinsurance was 20 receive federal funding. are reported to have changed a num em ploym From ent-based health bene both a budgetary and political perspec fits with pr ber of etax do aspects of the Senate-passed provision: llative, the tax preference associated with rs. insuranc Issue Brief e less affo no. 294 rdable, espec , June 2i006. ally for lower-income workers. Taxing the benefit is expected to percent, reducing the use of health care services from $10,000 to $8,000 would save an employment-based health benefits is an almost inescapable target. Tax expenditure estimates— reduce the cost of coverage by reducing the comprehensiveness of high-cost coverage, which is individual $400. Hence, if an individual with diabetes using average health care services of Paul Fronstin Paul Fronstin Paul Fronstin Paul Fronstin Paul Fronstin Paul Fronstin Paul Fronstin Paul Fronstin Paul Fronstin n Employee Benefit Employee Benefit Employee Benefit Employee Benefit Employee Benefit Employee Benefit Employee Benefit Employee Benefit Employee B Benefit Research Research Institute Research Institute Research Institute Research Institute Research Institute Research Institute Research Institute Research Institute In nstitute January January 21, 20 January 21, 20 January 21, 20 January 21, 20 January 21, 20 January 21, 20 January 21, 20 January 21, 20 2 21, 2010 10 10 10 10 10 10 10 10