Health insurance is a major beneficiary of federal tax breaks that help taxpayers with high incomes, tax experts said today on Capitol Hill.
The experts appeared at a tax benefits and burdens distribution hearing organized by the Senate Finance Committee. The committee held the hearing to look into reports that lower-income taxpayers often pay a higher tax rate than higher-income taxpayers pay.
Scott Hodge, president of the Tax Foundation, Washington, said the group health insurance tax exclusion is a prime example of a tax break that helps higher-income taxpayer more than lower-paid taxpayers and may disrupt the market.
The group health tax exclusion will cost the U.S. government about $174 billion this year, and it “creates a classic third-party payer problem in which patient-consumers are disconnected from the cost of service,” Hodge testified at the hearing, according to a written version of his remarks posted on the committee website. “The cost of health care is soaring because we have an unlimited demand for health care since someone else is paying the bills. The market forces that deliver quality goods at low prices for everything from toasters to automobiles have been disrupted in the health care system because it is tax preferred.”
The Patient Protection and Affordable Care Act of 2010 (PPACA) will make matters worse, not better, Hodge said.