Urban Institute Study on Impacts of Limiting Tax Exclusion for Employer-Sponsored Health Care

Capping the tax exemption for employer-sponsored health coverage would raise hundreds of billions of dollars over the next decade, according to new analysis by the Urban Institute. As the single largest tax expenditure, the employer-sponsored insurance exclusion massively reduces the tax revenues the government collects each year — by a total of $268 billion in 2011. Placing a cap on the exemption that allows the top 25 percent of the most expensive health benefits to be taxed would raise $264 billion for the federal government by 2023.

A cap on the exemption for employer-sponsored health care has started to come up for discussion frequently as Congress looks toward a broad tax reform in 2014. The cap analyzed by the Urban Institute would lead to a tax increase for 16 percent of people who file taxes in 2014 and 20 percent of people who file taxes in 2023.