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First Tuesdays: Is There a Fair Way to Cap the Tax Exclusion of Employer-Sponsored Health Insurance?

Tuesday, June 2, 2009
Noon–1:30 p.m. ET

Listen to the event Audio Recording


Len Burman
Len Burman, institute fellow and director, Tax Policy Center, Urban Institute

Stuart Butler
Stuart Butler, vice president, domestic and economic policy studies, Heritage Foundation

Stan Dorn
Stan Dorn, senior research associate, Health Policy Center, Urban Institute; author, “Capping the Tax Exclusion of Employer-Sponsored Health Insurance: Is Equity Feasible?”

Elise Gould
Elise Gould, director, health policy research, Economic Policy Institute

Richard Ostuw
Rich Ostuw, consulting actuary; former chair, American Academy of Actuaries task force on health plan valuation

Health reform -- the “let’s do lunch” of public policy -- is on everyone’s lips in Washington. But like many long-postponed, obligatory meals, who is going to pick up the check?

Capping the tax exclusion of employer-sponsored insurance (ESI) -- an idea loved and loathed by politicians from both parties -- is on the table to pay for subsidies for the uninsured and to moderate companies’ incentives to offer high-end coverage.

If a cap is defined by ESI costs, the generosity of coverage will not be the only factor determining whether benefits are taxed as income. Because of geographic differences in health care costs, premiums for the identical benefits package can more than double when an individual crosses state lines. Workers’ age, company size, and category of dependent coverage can also change premiums, even if benefits remain fixed.

Can these inequities be avoided? If so, will this be a way to bridge the philosophical divide and move forward on comprehensive health reform?

In a forthcoming paper, the Urban Institute’s Stan Dorn explores one way of bringing fairness to capping the tax exclusion: taxing benefits if their actuarial value -- the claims costs that actuaries project if a nationally representative population were enrolled -- exceed specified levels. As a result, only the generosity of covered benefits would determine whether ESI is taxed. Other factors would be irrelevant.

Be part of the conversation as a panel of experts considers
• whether a tax cap using actuarial value can help bring peace to the health reform debate;
• how actuarial value figures in the Children’s Health Insurance Program and Medicare Part D’s prescription drug coverage;
• whether an actuarial value cap would impose unsustainable red tape on businesses or permit unscrupulous employers to “game” the system; and, above all,
• whether capping the employer exclusion is a good or dangerous idea.

- Bios (pdf)
- Stuart Butler: Health Care Cure Seen in Tax Code (link)
- Stan Dorn handout (pdf)
- Stan Dorn: Capping the Tax Exclusion of Employer-Sponsored Health Insurance: Is Equity Feasible? (link)
- Elise Gould: Who Loses if We Limit the Tax Exclusion for Health Insurance? (pdf)
- Elise Gould: How Capping the Tax Exclusion May Disproportionately Burden Children & Families (pdf)

At the Urban Institute
2100 M Street N.W., 5th Floor, Washington, D.C.

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