Tell Congress to Oppose Eliminating or Capping the Employer Exclusion

Congress is currently considering healthcare reform proposals that would eliminate or place a cap on the employer-tax exclusion for health insurance. Eliminating the exclusion would eliminate most of the advantages of employer-sponsored insurance, while capping it would degrade the benefit and serve as a tax increase for middle-class Americans.    Take Action now

The employer-based system is highly efficient at providing American workers and their families with affordable coverage options through group purchasing and its associated economies of scale of purchasing power by spreading risk and avoiding adverse selection. The success of this system is possible because of the preferential tax-treatment of employers-sponsored insurance coverage, where employer-paid contributions for an employee’s health insurance are excluded from that employee’s compensation for income and payroll tax purposes. More than 175 million Americans currently receive their coverage through the employer-based system.

Eliminating the exclusion would eliminate most of the benefits of employer-sponsored insurance. Employers and individuals would lose many group purchasing efficiencies, and there would no longer be a potent means for spreading risk among healthy and unhealthy individuals. Workers would be less likely to have their employer as an advocate in coverage disputes, and employers would be less likely to involve themselves in matters of quality assessment and innovation for their employees. Employers could also suffer in terms of worker productivity and labor costs because employer-sponsored insurance leads to far more workers purchasing health insurance than they would on their own.

Further, eliminating the exclusion would result in employers having little incentive to offer insurance to their employees, as employers continuing to offer coverage would face higher FICA matches to the value of the plan, and employees would face increased income taxes. The likely result would be less generous benefit plans. Employers choosing to no longer sponsor insurance but instead to increase salaries to assist their employees purchasing plans on the individual market would similarly face increased FICA matches and employees increased taxes. Given these increased taxes, the remaining increased salary would be less than the amount of the plan, resulting in less valuable coverage than the employee previously received.

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The information provided is for informational purposes only and does not constitute legal advice. The information above contains only a summary of the applicable legal provisions and does not purport to cover every aspect of any particular law, regulation or requirement. Depending on the specific facts of any situation, there may be additional or different requirements. This is to be used only as a guide and not as a definitive description of your compliance obligations.