Health policy specialists at the Paragon Health Institute, a think tank with strong Republican ties, believe that capping the current unlimited federal income tax exclusion for employer-sponsored health benefits could potentially improve the U.S. health care system. In a new health tax policy paper written by Theo Merkel and Brian Blasé, both former White House National Economic Council members during the Trump administration, they recommend limiting the health benefits tax exclusion to 125% of the national average cost of health coverage, adjusted for age and location.
According to Merkel and Blasé, the health benefits tax exclusion, which costs the federal government $345 billion in tax revenue, distorts the U.S. health care market by driving up prices and insulating health plan enrollees from the true cost of care. They argue that focusing on improving health savings account and health reimbursement arrangement programs, along with reducing taxes overall, could give workers more flexibility with their extra cash instead of relying on employer-sponsored insurance with unlimited tax exclusions.
The policy specialists also estimate that around 500,000 people likely have health coverage through individual coverage health reimbursement arrangements or qualified small employer health reimbursement arrangements. This proposal and estimation provide insight into potential changes that could impact the U.S. health care system and the way individuals receive and pay for their health care services.