Change – Don't Drop – Workplace Health Tax Break

May 12, 2009 ( - As lawmakers continued Tuesday to ponder how to reform the nation's health-care delivery system, one witness called for a "properly designed" limit on the current workplace health insurance tax break.

In his appearance before the U.S. Senate Finance Committee, Robert Greenstein, executive director of the Center on Budget and Policy Priorities, said the current tax exclusion encourages people to spend more needlessly on medical services. Currently employers can deduct the cost of the benefit and employees do not pay income taxes on it.

Noting concerns raised in prior hearings on the same topic, that scaling back the current tax break might hurt the current employer-based health delivery system, Greenstein insisted nevertheless that a change was possible.

“If properly designed, a limit on the tax exclusion for employer-sponsored insurance could be administered in an equitable fashion and without imposing large compliance burdens on employers or workers, could contribute significantly to financing health care reform, and could be a useful tool in helping to restrain health care costs,” Greenstein said in his prepared remarks.

For example, Greenstein suggested that an employer health tax break limit could be developed based on the cost of insurance – only employer payments for the most expensive plans would be taxable. Or, he said, a cap could be built around the income of the taxpayer.

Meanwhile James Klein, president of the American Benefits Council, an employer group, supported the urgent need for reform but again cautioned lawmakers not to radically upturn the current employer system. “Ensure that Americans can keep the coverage they enjoy, which for most people is employer-sponsored coverage, “Klein argued. “Financing and other policies should protect and build upon employer-based health coverage.”

Michael Jacobson, executive director of the Center for Science in the Public Interest, suggested raising taxes on alcohol, soft drinks and foods high in fat and salt to encourage healthier eating and raise revenue. But committee chairman Senator Max Baucus (D-Montana) said lawmakers must take into account what was “politically palatable”. “Finding money that we can all agree on will not be easy,” Baucus said in an opening statement.

The committee was scheduled to hear from 13 witnesses during Tuesday’s session. More information about the session is available  here .