In a new health tax policy paper, President Theo Merkel and Senior Research Fellow Brian Blasé of the Paragon Health Institute, a think tank with Republican ties, propose capping the unlimited federal income tax exclusion for employer-sponsored health benefits. Both Merkel and Blasé have previous experience working for the White House National Economic Council during the Trump administration.
In their proposal, Merkel and Blasé argue that while the exclusion is less distorting than Medicare or Medicaid, it still has significant flaws that impact the U.S. health care market. Specifically, they note that the exclusion costs the federal government $345 billion in tax revenue and contributes to rising health care prices by encouraging employees to have richer benefits than they would choose on their own.
Instead of focusing on reforming the health benefits tax exclusion, Merkel and Blasé recommend that Congress concentrate on improving health savings accounts and health reimbursement arrangement programs. They also advocate for reducing overall taxes to give workers more disposable income that they can use as they see fit. Additionally, they provide an estimate that around 500,000 U.S. workers receive health benefits through individual coverage health reimbursement arrangements or qualified small employer health reimbursement arrangements.
Overall, Merkel and Blasé’s proposal aims to address the flaws in the current health benefits tax exclusion system and offer alternative solutions to improve the affordability and accessibility of health care for American workers
