Currently, employer-provided health insurance is excluded from federal taxation. This tax exclusion represents the largest tax expenditure in the federal budget, leading to an estimated $280 billion in forgone revenue in 2019. The health tax exclusion also provides a greater benefit to higher income taxpayers and contributes to health care inflation, a major driver in the growth of federal entitlement spending and an increasing burden on companies and individuals.

There are numerous options to limit the exclusion. These include capping it, replacing it with a tax credit, and ending it. Options to limit the exclusion or replace it with a credit would generate anywhere from $200 billion to $1.3 trillion in revenues over ten years. We recommend the phase in of a cap on the deduction for health insurance for higher cost health insurance plans. Based on previous CBO estimates it would generate additional revenue of a little over $250 billion over ten years.