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 $348 billion in forgone revenue in 2023 and a total of $5.3 trillion for Funding Year (FY) 2024-2033.  The Health Care 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 financial burden on companies and individuals.

There are numerous options to limit the exclusion. These include capping the exclusion, 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 $3 trillion in revenues over 10 years. We propose phasing in a cap on the deduction for health insurance for higher cost health insurance plans. Based on previous CBO estimates this plan would generate additional revenue of a little over $360 billion over 10 years.