As plans to repeal and replace the Affordable Care Act unfold, ensuring the tax-exempt status of employees’ contributions to employer-provided healthcare benefits is The Council of Insurance Agents & Brokers No. 1 legislative priority.

It is a “tumultuous period” on Capitol Hill and there is great concern among advisers and employers that the tax-exempt status of employee contributions is “very vulnerable,” explains Joel Wood, the group’s senior vice president of government affairs.

Joel Wood (R) talks with attendees at CIAB's legislative summit on Capitol Hill February 8.
Joel Wood (R) talks with attendees at CIAB's legislative summit on Capitol Hill February 8. Brian M. Kalish/EBA

Currently, there are three main proposals moving forward as the GOP works to replace the ACA:

1) A plan by Sens. Orrin Hatch (R-Utah) and Richard Burr (R-N.C.), which would set the maximum tax exclusion as a fixed percentage of an average plan’s cost. Right now that max is estimated at 80%, but Wood is concerned that Congress would change that percentage each year.

2) A plan by Speaker Paul Ryan (R-Wisc.) that would also include a cap-based tax. Ryan’s most recent proposal only has one line on this potential change, so exact details are not known, Wood explains.

3) A plan by HHS Secretary Tom Price, proposed when he was a Georgia Representative, that would implement a tax based on the value of the employer’s health plan.

All three ideas “touch employer-sponsored insurance,” Wood says. CIAB is lobbying Congress not to modify the employer-sponsored insurance system that 154 million people rely on. But, he adds, “tangible changes might happen.”

He says if the employer-sponsored insurance tax exemptions were to be modified, it would be determinantal for the country. “If you think we still have a problem with 20 million to 30 million uninsured eight years into Obamacare, just eviscerate the employer health system and see where those numbers go,” he said Wednesday at the group's s annual legislative summit on Capitol Hill.

Speaking at the summit, Rep. Steve Scalise (R-La.), the House majority whip, said his party “wants to let the [employer-based] system continue to thrive.”

“We want to give it more tools like HSAs, we want to … include more flexibility,” he said. “The employer-based market will be the most predominant place where people get healthcare, no matter what changes we make.”

The House Ways & Means Committee, which has jurisdiction over this issue, is exploring the tax status, he said. “They are looking at a whole host of tax issues related to healthcare and the tax credits,” he says. “There is no final decision, but the committee is working on a decision on how to come up with a solution.”

Market stability
Sean Clem, vice president of technology, marketplace and engagement solutions at Chicago-based brokerage Pacific Resources, says that the tax exclusion of employee contributions to their benefits plans shouldn’t be touched.

“Stop and look at the stability of the employer market and instability of the public exchanges,” he says. “Starting to tax and add in additional financial burdens will continue to make them less stable, … and continue to create problems for the broader population receiving care.”

“I’m concerned with the continued attention the [potential] tax on employees is getting,” he adds.

Clem, who attended the legislative summit, acknowledges there is a “lot of unknowns,” yet he remains “cautiously optimistic” the tax-favored status will remain intact.

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