More on Simpson-Bowles chair mark health proposals

Following up on Friday’s post noting that the Simpson-Bowles chairman’s mark had lots of health policy content, I revisit this April 11, 2011 post on some of the details of how the tax reform proposed in the mark could influence health spending:

The Fiscal Commission identified an illustrative tax reform plan that ended many tax expenditures and capped others. Table 7 on p. 31 of the Fiscal Commission report details the mix of tax expenditures that would remain, and which would result in a lowest marginal rate of 12% and a top one of 28%. I want to highlight what this illustrative plan did to the tax exclusion of employer paid health insurance. From Table 7 (this is only part of the original table, the full table is at the end of this post):

The Fiscal Commission illustrative proposal would cap the tax exclusion of employer provided health insurance at the 75th percentile of premiums in 2014, and slowly move to end this tax expenditure totally by 2038. If the 75th percentile of premiums was $23,000 in 2014, then if your employer paid $23,000 or less for your health insurance in that year you would incur no tax liability on those premiums. If your employer paid $25,000 in premiums, for example, then $2,000 of this (amount above the cap) would be taxable as income in your marginal tax bracket. In 2038, the full amount paid by an employer on behalf of an employee for health insurance would be taxable income. The excise tax on high cost health insurance that is set to come into force in 2018 via the Affordable Care Act would be reduced to 12% under this proposal. Overall, this proposal would do two things as compared to ACA.

Address the tax treatment of employer paid insurance in 2014 instead of waiting until 2018 to do so via the excise tax on high cost insurance; this would increase the cost saving potential of the ACA.

Help focus attention on the fact that it is people like me who get employer based insurance who benefit from this tax expenditure.

Rep. Ryan says in this New York Times Op-Ed on March 26, 2010 that addressing the tax treatment of employer provided health insurance is the most obvious next step for addressing health care costs (I agree with him). However, when he had a chance to vote for moving in this direction, he did not do so.

About Don Taylor
Professor of Public Policy (with appointments in Business, Nursing, Community and Family Medicine, and the Duke Clinical Research Institute), and Chair of the Academic Council at Duke University . I am one of the founding faculty of the Margolis Center for Health Policy. My research focuses on improving care for persons who are dying, and I am co-PI of a CMMI award in Community Based Palliative Care. I teach both undergrads and grad students at Duke. On twitter @donaldhtaylorjr

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