Obama endorsed the Health Care Now effort put together in Illinois by Citizen Action
Estimates by the Economic Policy Institute suggest up to 850,000 people in Illinois could lose healthcare under McCain’s plan to remove the tax break on employer provided benefits.
The current tax exclusion for premiums for employer-sponsored insurance allows employers to offer their employees either direct compensation in the form of health insurance premiums that are not taxed, and the opportunity to pay for premiums themselves with pre-tax (both payroll and income tax) dollars.
This exclusion has attracted policy makers’ attention for a number of reasons.3 First, it is expensive, costing the federal government over $200 billion in foregone taxes in 2007. Second, it is regressive, with most benefits going toworkers who are offered employer-sponsored insurance and who face high marginal tax rates, both of which indicate workers nearer the top of the earnings distribution.
These reasons (among others) explain why many recent health proposals have involved either reducing or
outright eliminating the tax exclusion. While many of these other proposals have focused only on the income tax exclusion, it is not clear that the final McCain proposal will maintain the current exclusion for payroll taxes. Revenue estimates from the McCain campaign suggest that the proposal will indeed end the payroll tax exclusion (Kvaal et al. 2008), but some independent assessments of the McCain proposal have only assumed an end to the income tax exclusion (Burman et al. 2008; Buchmueller et al. 2008). This paper also focuses only on the income tax exclusion. It should be noted that our estimates of employer-sponsored insurance loss would be substantially higher (by roughly a third) if in fact the payroll exclusion
were also eliminated.
The current tax exclusion is a linchpin of the employerbased health insurance system in the United States. While this system is far from perfect, it does pool and spread risk, and it is how 165 million U.S. residents under the age of 65 receive health insurance. Kicking away the foundations of this system should only be done if there is a well-crafted alternative.