The Council and the American Benefits Council announced the release of a macroeconomic study conducted by Ernst & Young (EY), which examines the impact of the tax exclusion for employer-provided health insurance. This study examines the potential effects of limiting the income and payroll tax exclusion for employer-provided health insurance.
Currently, employer-paid health insurance premiums are excluded from income and payroll taxes, as are most employee contributions. This helps encourage widespread adoption of employer-sponsored coverage.
Proposed Policy Change
The policy examined in the EY study would establish specific limits on tax-exempt health coverage contributions starting in 2026:
- $11,200 for individual coverage
- $27,600 for family coverage
These caps are based on the 75th percentile of premiums in 2024 and adjusted for inflation. Any contributions exceeding these thresholds would become subject to income and payroll taxes.
It’s important to note that this policy’s impact intensifies over time. Since healthcare premiums historically rise faster than general inflation, by 2032, the tax exclusion would effectively be limited to only the 50th percentile of premiums, meaning half of all health plans would exceed the cap.
Key Impacts
Imposing a limit on the tax exclusion for employment-based health coverage is estimated to have the following impacts on the US economy:
Long-Term Escalation
What begins as significant but manageable economic disruption grows substantially over time. By 2050, the study projects:
- Approixmately 4,000 deaths annually
- 240,000 fewer jobs each year
- $40 billion less in annual RDP
- $250 billion less after-tax employee compensation annually
This escalation occurs because the tax policy becomes increasingly restrictive as healthcare costs continue to outpace the inflation adjustment used for the exclusion limits.
Considering the Full Picture
While limiting tax preferences for employer health coverage may be viewed as a deficit reduction measure, the EY study suggests the consequences extend far beyond federal revenue impacts. The combined effect on compensation, employment, GDP, insurance coverage and population health presents a comprehensive picture of the potential tradeoffs.
For a consultative approach to navigating coverage and pricing changes within the insurance market, contact a UNICO Advisor.
For more information, see resources below.
