Senate Finance Committee Hearing Focuses On Changing Tax Exclusion For Employers Who Offer Health Coverage

Main Category: Health Insurance / Medical Insurance
Article Date: 04 Aug 2008 - 5:00 PDT

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Economists at a Senate Finance Committee hearing on Thursday discussed how tax code changes to employer-sponsored health insurance premiums could fund health care coverage for the uninsured, CQ HealthBeat reports. Committee Chair Max Baucus (D-Mont.) referred to the tax subsidies for employer-sponsored health benefits, which exclude premiums paid by employers from taxable income for employees, as "the third largest government entitlement for health care" after Medicare and Medicaid.

Massachusetts Institute of Technology professor Jonathan Gruber told the committee that the exclusion is "leading to over-insurance for most Americans" and estimated that because of the exclusion, the federal government forgoes $250 billion annually in tax revenue -- "an enormous sum of money" that "could be more effectively deployed elsewhere, especially through alternative approaches to increasing insurance coverage."

Gruber cautioned that "many employers currently only offer health insurance because of this 'tax bribe,' and ending the exclusion would lead to a large erosion of employer-sponsored insurance," adding that changes to the tax code could result in "a large new set of uninsured who cannot afford, or cannot obtain at any price, non-group insurance." Gruber offered a variety of options for addressing that issue.

Joint Committee on Taxation Chief of Staff Edward Kleinbard noted problems with the subsidy but acknowledged the advantages of group health plans offered by employers, who have "superior negotiating power" with insurers compared with individuals.

Baucus said that ending the employer role in providing health care "might be too much change," but "all of us recognize that our system is unsustainable." Baucus added, "We cannot continue on our current path. But we must strike a balance. We need to fix what's broken, without breaking what's working" (Reichard, CQ HealthBeat, 7/31).

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