Issues Impacting the Decision to Tax Part of Employer Health Insurance Benefits

Abstract:     
Congress and the Administration are considering the possibility of taxing excessive employer sponsored insurance (ESI) benefits. This paper considers issues associated with the proposed tax on generous ESI plans. The primary purpose of a tax on ESI benefits is to restrain the growth of health insurance premiums and utilization rather than to directly raise revenue. A tax that restrains health care utilization would create economic efficiencies and reduce tax expenditures associated with ESI sponsored health insurance. An equitable ESI benefit tax would require government regulation to insure that it was imposed on firms offering generous health insurance plans instead of small undiversified firms that are charged high premiums because of their high-risk, older or sick workforce.

Keywords: tax, health reform, employer sponsorred insurance, benefits, premiums

JEL Classifications: G22, H24, H23, H51

Working Paper Series