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Digital EditionTax Cap on Employer Health Plans Could Leave 1 Million Uninsured, Cut 75,000 Jobs
A proposed tax policy change limiting exclusions for employer-based health coverage could leave 1 million more Americans uninsured and eliminate 75,000 jobs in its first decade of implementation, according to a report from the Council of Insurance Agents and Brokers and the American Benefits Council.
The proposal aims to limit tax exclusions for employer-based health coverage to the 75th percentile of premiums beginning in 2026, representing a significant shift in how workplace health benefits are taxed, according to the report, which was prepared by EY.
Current State of Employer-Based Health Coverage
Employer-provided health insurance remains the backbone of America’s private health coverage system. Currently, 75% of employees work for organizations that offer health insurance benefits, according to the Bureau of Labor Statistics (BLS). Among eligible workers, 57% actively participate in their employer’s health plans, translating to a 76% take-up rate, per the BLS. This makes employment-based insurance the predominant form of private health coverage in the United States.
Premium Cost Structure
The financial burden of health insurance is shared between employers and employees, though not equally, the report noted. For single coverage plans, employees typically contribute a median of $1,620 annually toward their premiums, while employers cover a substantially larger portion at $6,908. The disparity grows with family coverage, where employees pay a median of $6,282 and employers contribute $13,982.
Overall, employees bear approximately 19% of premium costs for single coverage and 31% for family coverage, with employers shouldering the remainder, according to BLS data.
Current Tax Treatment
Under current tax law, employer premium payments for health coverage enjoy exclusion from both income and payroll taxes. Similarly, employee premium contributions are typically excluded from taxable income through cafeteria plans.
The tax advantages extend beyond standard health insurance premiums to include additional health-related accounts such as Flexible Spending Accounts (FSAs), Health Reimbursement Arrangements (HRAs), and Health Savings Accounts (HSAs), which offer various tax benefits to help employees manage health care expenses, according to the report.
Proposed Policy Changes and Direct Impacts
The proposed tax policy change would establish 75th percentile premium caps beginning in 2026, estimated at $11,200 for individual coverage and $27,600 for family coverage. These limits would apply not only to insurance premiums but also to contributions to health spending accounts. To maintain relevance with changing economic conditions, the caps would adjust annually based on the chained Consumer Price Index for Urban consumers (CPI-U), a measure that typically rises more slowly than health care costs, the report noted.
A Congressional Budget Office report on the economic impact of the proposed change projects significant shifts in health insurance coverage by 2035. An estimated 2.8 million fewer Americans would have employer-sponsored coverage, the CBO report found. While some would find alternatives—with approximately 800,000 shifting to the nongroup market and 500,000 moving to Medicaid or the Children’s Health Insurance Program (CHIP)—a concerning 1.5 million individuals would likely become uninsured, according to the report.
Health Outcome Implications
The coverage reductions translate to sobering health consequences, according to the CIAB/ABC report. The report estimates approximately 1,000 additional deaths annually during the first decade following implementation. This mortality impact is projected to worsen over time, potentially reaching 4,000 additional deaths annually by 2050. Beyond mortality, reduced insurance coverage would diminish access to preventive care and necessary treatments for many Americans.
Economic Consequences
The ripple effects throughout the economy would be substantial, according to the report. The analysis forecasts 75,000 fewer U.S. jobs on average during the policy’s first decade. This employment impact would worsen with time, potentially reaching 240,000 fewer jobs annually in the long term. Workers’ compensation would also suffer, with an estimated $75 billion reduction in annual after-tax compensation initially, growing to an alarming $280 billion reduction over the longer term.
The broader economic picture shows similarly concerning trends. The policy change would likely reduce annual GDP by an average of $10 billion in the first decade, with this impact growing to approximately $40 billion annually over the long term. Notably, while health impacts would initially account for about 10% of the GDP effect, their contribution would rise to 25% in the long term, highlighting how declining health outcomes increasingly drag on economic performance.
“Our members have been working for decades to help their employer clients address rising health care costs, designing strategies that promote affordable coverage and valuable care,” said CIAB President/CEO Joel Wood. “This study reinforces our long-held position that limiting tax benefits for employer-provided insurance would impact both the quality and availability of care for hundreds of millions of Americans. It also does nothing to address challenges around pricing transparency and fair market competition, which are key drivers of rising health care costs.”
“This analysis confirms what voters have already clearly expressed – the current tax treatment of employer-sponsored health coverage is essential to the health and wealth of working Americans and their families,” said American Benefits Council President Katy Johnson. “We urge policymakers to focus their energies on improving value and reducing the cost of health care.”
Obtain the full report here. &
