NCPA - National Center for Policy Analysis

High-Income Families Benefit Most From Health Insurance Tax Breaks

January 10, 2000

Well-designed changes in tax policy could expand health insurance coverage among the 43.4 million uninsured persons in the United States, says a study by the Lewin Group for the National Coalition on Health Care.

Under current tax policy, higher income families receive most of the tax breaks because most spending for employer-sponsored health benefits is not counted as taxable income to the individual in computing either income tax or Social Security tax. But individuals who aren't covered by their employer have to purchase coverage in the individual market and receive no tax breaks.

The tax-exempt treatment of health benefits has encouraged employer-sponsored plans, which now cover about 158 million workers and their dependents.

  • The various federal tax exemptions and deductions for health insurance premiums and health services provide about $125.6 billion in tax subsidies per year.
  • The average tax subsidy for families with a family head under age 65 will be $1,155 in 2000.
  • The average tax subsidy per family varies from just $79 for families with incomes of less than $15,000 to $2,638 for families with incomes in excess of $100,000 per year.
  • In fact, 68.7 percent of federal health benefits tax subsidies go to families with incomes of $50,000 or more.

While a tax deduction or partial tax credit for insurance purchased individually would increase the number of people covered, they would mostly be in higher income families.

But an estimated 61 percent of the persons induced to buy coverage by a refundable tax credit of $500 for single coverage and $1,000 for families would have incomes of less than $50,000 per year.

However, there still would be 30 million or more persons without health insurance under congressional tax credit proposals.

Source: "Health Insurance and Taxes: The Impact of Proposed Changed in Current Federal Policy," Medical Benefits, December 15, 1999.


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