Employer Groups Push Back Against Proposed Limits on Health Insurance Tax Exclusion

Employer groups, including the National Association of Benefits and Insurance Professionals (NABIP), are gearing up to defend health coverage for the 175 million Americans who rely on employer-sponsored insurance.

The Trump administration and Congress have signaled a willingness to consider capping the tax exclusion for employer-sponsored health insurance. This long-standing policy allows employer contributions toward health premiums to be exempt from federal income and payroll taxes.

Some policymakers argue that this exclusion costs the government billions in lost tax revenue and contributes to rising healthcare costs by encouraging "overinsurance"—where individuals and families opt for more expensive plans than necessary. Currently, this tax exclusion is the third-largest government expenditure in the tax code, behind only retirement tax benefits and reduced capital gains tax rates.

The **Fair Care Act of 2024, introduced by Rep. Bruce Westerman (R-AK), is the fourth version of a bill that proposes capping the employer tax exclusion at $10,200 for individual coverage and $27,500 for family coverage.

Employer groups, including NABIP, warn that such a change could significantly weaken the value of employer-sponsored insurance. They argue that:

• Employers and employees would lose the cost advantages of group purchasing, making health coverage more expensive.

• Insurers would struggle to spread risk effectively, potentially leading to higher premiums.

• Employers might reconsider offering health benefits, as they would face higher payroll taxes due to increased FICA obligations on the value of health plans.

Ultimately, reducing or eliminating the employer tax exclusion could disrupt a system that has successfully provided affordable coverage to millions of Americans. Employer groups are committed to advocating for policies that preserve this critical benefit.