In 2016, most Americans between the ages of 18 and 65 will get their health insurance from their employer—and they will get it for less because the federal government will give them tax breaks to the tune of $266 billion, according to a new report from the Congressional Budget Office.

Overall, federal subsidies for this age group will total more than $600 billion and will help provide health insurance to some 244 million Americans. Besides employment-sponsored coverage, fewer numbers receive coverage from Medicaid, Medicare, non-group insurance purchased through a public health insurance exchange and a small number of other sources, according to CBO. The government agency estimates that about 27 million people, or 10% of the population under age 65, will be uninsured in 2016.

“The report reflects once again the magnitude of federal expenditure on healthcare for the population under 65,” says Katherine Hempstead, a director at the Robert Wood Johnson Foundation, the nation’s largest philanthropy dedicated solely to health. “The $660 billion estimated for 2016 amounts to roughly $2,800 for each insured person — a truly impressive figure.”

Employment-based insurance, in 2016, will cover 155 million people or 57% of the population under age 65. The number is projected to decline to 152 million, or about 54% of the population, by 2019, where it is expected to remain.

The CBO anticipates the drop primarily as a result of the Affordable Care Act, and some employers choosing not to provide coverage to certain segments of their workforce that are eligible to receive coverage under other programs, such as exchange-based subsidies. A secondary reason, noted by the CBO, is the rapid rise of health insurance premiums for employer-based plans, which are growing faster than wages. The increases, along with greater cost-sharing by employers, have led to a gradual decline in enrollment by in these plans by lower-wage employees, a trend which began before the ACA took effect.

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“The report reflects once again the magnitude of federal expenditure on healthcare for the population under 65."

In the report, the CBO revised downward, but not totally backed off, its anticipated decline in employment-sponsored enrollment. “They project a pretty good sized slide … [but] this estimate will obviously be revisited,” says Hempstead, who questions whether there will truly a migration away from employment-sponsored insurance. “So far,” she says, “there has been little evidence that this will occur aside from very small businesses.”

Federal subsides

The report estimates that in 2016 the federal subsides, taxes and penalties associated with health insurance coverage will result in a net subsidy of $660 billion, or 3.6% of the United States’ gross domestic product. The amount is expected to rise at an annual rate of 5.4%, reaching $1.1 trillion, or 4.1% of GDP, by 2026. Between 2017 and 2026, the CBO expects the government to subsidize the under-65 group to the tune of $8.9 trillion.

Most premiums for employer-based coverage are excluded from income and payroll taxes, and these tax breaks will amount to a total of $3.6 trillion or 40% of the total net subsidy.

The report notes that the estimate of the subsidy does not equate to the tax revenues that would be collected if the tax exclusions were eliminated, “because people would adjust their behavior to reduce the tax liability created by such a change.”

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