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Limiting the Tax Exclusion of Employer-Sponsored Health Insurance Premiums: Revenue Potential and Distributional Consequences

May 1, 2013

Serious efforts to forge a budget agreement in 2013 will increase the likelihood that lawmakers will seek changes to tax provisions in order to raise revenue. The exclusion of employer-sponsored health insurance premiums and medical benefits from taxable income could be a target, since this exclusion reduced federal tax revenues by $268 billion in 2011 alone -- by far the largest federal tax expenditure. Moreover, the exclusion disproportionately subsidizes those with higher incomes. Yet proposals to change the tax exclusion of employer-sponsored insurance have provoked intense debate. This brief provides estimates of the revenue potential and distributional consequences of a new policy option. The policy analyzed here would impose a cap, or dollar limit, on the aggregate cost of employer-sponsored health coverage excluded from income and payroll taxes. The cap would be set at the 75th percentile of the sum of premiums and other medical benefits, and would be indexed, or allowed to grow over time, by a five-year average of the rate of GDP growth. The goal in choosing the level and indexing for the cap was to select a policy that would make a significant contribution to debt reduction, but would be distributionally equitable. This brief answers four critical questions related to the 75th percentile cap on the exclusion of premium and medical benefits:What are the estimated new tax revenues related to this policy in 2014 and 2014 -- 2023?How many people would pay higher taxes in each quintile of income?How much would taxes increase for those paying higher taxes?What are the characteristics of employers whose employees are likely to pay higher taxes?The evidence shows that the 75th percentile tax cap would produce $264.0 billion in new income and payroll tax revenues over the coming decade while still preserving 93 percent of the tax subsidies available under the current policy. Across all tax units, 15.7 percent would pay higher taxes under the 75th percentile cap on the exclusion of premium and medical benefits in 2014, with this share increasing to 20.0 percent by 2023. Although tax units across the entire income distribution would experience some tax increases, these increases are considerably smaller and less prevalent at lower income levels. The policy change would affect public-sector employees to a greater extent than private-sector employees. In addition, among private-sector employees, those in the financial services/real estate or professional services industries would be affected to a greater extent, while employees in other industries such as the retail industry, would be affected to a lesser extent. Establishments with a union presence have only a modestly higher share of employees with premiums above the 75th percentile premium, compared to the average across all establishments.

Russians Back Protests, Political Freedoms and Putin, Too

May 23, 2012

Presents survey findings about Russians' reaction to the December 2011 parliamentary and March 2012 presidential elections and subsequent protests, attitudes toward democracy, and views of leaders, nationalism, and Russia?s global image.

Refocusing Responsibility for Dual Eligibles: Why Medicare Should Take the Lead

October 5, 2011

Examines the federal share of costs for those eligible for both Medicare and Medicaid, potential savings from better management of Medicare-funded care, and risks of greater state responsibility for spending. Calls for federally led efforts to cut costs.

Medicaid Spending Growth Over the Last Decade and the Great Recession, 2000-2009

February 23, 2011

Analyzes Medicaid enrollment and per-capita spending growth by service and compared with other areas of the healthcare system. Examines contributing factors, potential program cuts as a result of states' budget woes, and implications for the safety net.

Dual Eligibles: Medicaid Enrollment and Spending for Medicare Beneficiaries in 2007

December 15, 2010

Provides an update on the share of total Medicaid enrollment and spending on those eligible for both Medicare and Medicaid through 2007, state-by-state estimates of Medicaid enrollment and expenditures for dual eligibles, and a breakdown of expenditures.

Health Insurance in Nonstandard Jobs and Small Firms: Differences for Parents by Race and Ethnicity

April 30, 2010

Focuses on the higher rates of small-firm and nonstandard employment and of uninsurance regardless of job type among Latino/Hispanic and African-American parents. Considers healthcare reform provisions' effects on their insurance costs and coverage rates.

Health Care Spending Under Reform: Less Uncompensated Care and Lower Costs to Small Employers

January 29, 2010

Estimates the implications of the House reform bill passed in 2009 for coverage distribution, cost of uncompensated care for the uninsured, and employers' net costs by firm size, and individual and family spending by income. Considers budgetary benefits.

Premium and Cost-Sharing Subsidies Under Health Reform: Implications for Coverage, Costs and Affordability

December 10, 2009

Using the Urban Institute's simulation model, estimates household financial burdens under House and Senate healthcare reform bills. Compares coverage and affordability under various reform options by source of coverage, income, healthcare needs, and age.

Changes to the Tax Exclusion of Employer-Sponsored Health Insurance Premiums: A Potential Source of Financing for Health Reform

June 25, 2009

Examines eight options for limiting the tax exclusion of employer-sponsored health insurance premiums. Compares, by income level, estimated effects of various caps and indices on tax revenues and after-tax incomes in the first year and over ten years.

Health Savings Accounts and High-Deductible Health Insurance Plans: Implications for Those With High Medical Costs, Low Incomes, and the Uninsured

January 31, 2009

Considers the advantages and disadvantages of health savings accounts and high-deductible health plans, including implications for people with high medical needs and for efforts to contain healthcare costs. Lists alternative cost-containment strategies.

Reinsurance in State Health Reform

May 1, 2008

Based on the experiences of three states, formal modeling, quantitative estimates, and qualitative assessments, explores the impact of and issues involved in publicly funding reinsurance for insurers as a way to expand or maintain private coverage.

The Urban Institute's Microsimulation Model for Reinsurance: Model Construction and State-Specific Application

May 1, 2008

Describes the Urban Institute's model for simulating the effects of using state-funded reinsurance to subsidize primary insurance premiums. Details the process of building state-specific baseline databases and modeling reinsurance policy options.