The employer health insurance tax exclusion could cost the federal government about $244 billion in revenue in 2012, up from $141 billion in 2007.
Ken McDonnell, an analyst at the Employee Benefit Research Institute, Washington, has reported those figures in a table based on data from a fiscal year 2008 budget document prepared by the White House Office of Management and Budget.
McDonnell looked at an OMB analysis of “tax expenditures,” or revenue that the government goes without because of decisions to refrain from taxing certain transactions and income streams.
OMB forecasters expect the government to lose a total of about $2 trillion on all employee benefit tax expenditures–including tax expenditures associated with education deductions, transportation deductions and many other deductions–between 2008 and 2012.
About $1 trillion of the total 2008-2012 benefits tax expenditures will come from health-related tax expenditures, the analysts predict.
The huge size of the health benefits tax expenditure forecast explains why President Bush is pushing to cap the currently unlimited exclusion for employer health insurance contributions, McDonnell says.
“Health insurance, compared to other expenditures, is much bigger,” McDonnell says. “It is a very important component.”
McDonnell notes that the OMB forecasters expect tax expenditures associated with many non-medical employee benefits, such as group term life insurance and accident and disability insurance, to remain relatively flat from 2008 to 2012.
For accident and disability, tax expenditures could increase to about $350 million in 2012, from $300 million in 2007, the forecasters predict.
Tax expenditures for group term life might increase to $2.5 billion in 2012, up only slightly from $2.3 billion in 2007, the forecasters predict.