Fourteen Republican members of the House of Representatives have signed onto a letter opposing proposals to phase out the tax exemption for employer-sponsored health insurance. The members, led by Reps. Tom Cole (R-OK) and Joe Courtney (D-CT), warned that modification to the system “would have far reaching consequences that would not only reduce health coverage for millions of Americans, but would also increase long-term federal spending obligations.” Both the Simpson-Bowles and Domenici-Rivlin deficit commissions recommended ending the exemption, which costs the government well over $200 billion a year in lost income and payroll taxes. From the letter, which also acknowledges that the Affordable Care Act won’t force employers to dump coverage:
Erosion of employer-sponsored health plans would also dissolve savings that have been built into this system of coverage. Employer-sponsored coverage is generally less costly than individual coverage because firms are able to capitalize on lower administrative costs associated with economies of scale. Employers have also been able to drive costs savings through health management plans. If the tax exclusion were to be eliminated, savings that the employer’s plans generate from economies of scale and adoption of health management plans would diminish as they drop coverage.
Not only would these savings be dissolved, but more employees would be forced onto Exchanges and to Medicaid. The CBO estimates that a majority of employers will continue to offer coverage in light of the changes from the Affordable Care Act; however, this projection hinges on, in part, the tax exclusion for employer-sponsored coverage. The CBO estimates that federal spending on Exchange subsidies will total $777 billion between 2012 and 2021. This estimate will explode, and far outweigh federal revenue gained if this tax treatment is eliminated.
The GOP’s opposition to ending the tax exclusion is significant, since several prominent Republicans have proposed replacing the Affordable Care Act with a “market based” health care solution that ends the employer tax subsidy and provides tax credits that would allow families and individuals to purchase health insurance coverage on the individual market. Republicans in the House also voted for a very similar plan in 2009 as part of their alternative to the Affordable Care Act.