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Taxing health insurance: The Republican zombie that refuses to die

Republicans continue to gaslight with 'revenue neutral' cap claim

Reps. Mary Miller, R-Ill., right, Joe Courtney, D-Conn., and Lisa McClain, R-Mich., at a House Education and Workforce Committee hearing in June 2023.
Reps. Mary Miller, R-Ill., right, Joe Courtney, D-Conn., and Lisa McClain, R-Mich., at a House Education and Workforce Committee hearing in June 2023. (Tom Williams/CQ Roll Call)

On March 20, the Republican Study Committee, a voluntary body that includes 80 percent of the Republican House Caucus — including Speaker Mike Johnson, R-La., and Majority Leader Steve Scalise, R-La. — released its budget plan for fiscal year 2025. This release deservedly received a lot of media attention based on its plan to raise the Social Security retirement age, adopt an extreme national abortion ban, and “voucherize” Medicare. Each of these actions piles more costs and burdens onto middle-class Americans and codifies draconian restrictions on the privacy rights of women and families to make reproductive health care decisions.

One item that was overlooked in the RSC plan is the imposition of federal income tax on employer-sponsored health insurance (ESI). This is part of Republicans’ ploy to steer Americans out of high-quality, often union-negotiated health plans and into unregulated plans with no consumer protections. This concept has been rattling around in right-wing circles for over two decades and would radically change the tax treatment of health coverage for 150 million Americans. Today, the value of health insurance coverage provided for employees is excluded from taxable income. The RSC plan would cap the exclusion at less than full value, thus increasing the tax liability of everyday Americans – teachers, office workers, factory workers, police and the like. The plan description attempts to blur the impact of such a change, calling it “revenue neutral,” but that is pure gaslighting. Capping a tax exclusion inherently adds to a taxpayer’s taxes or reduces their benefits. There is nothing “neutral” about it.

The Republican Party has gone down this path repeatedly in the past. The origin of the concept goes back to the godfather of Republican economics, Milton Friedman, who, in 2001, proposed abolishing employer insurance tax exclusion in his famous essay, “How to Cure Health Care.” His hostility to the exclusion was based on his libertarian hostility to group coverage, which offended his basic belief that individuals can somehow bear the risk and cost of illness and disease on their own. This Ayn Rand fantasy sounds good in the ivory tower of Koch Brother think tanks, but the reality of providing decent health care requires sharing risk as group plans do. Nonetheless, in 2008, the Republican National Convention platform endorsed capping the value of ESI plans from tax exclusion above $5,000. The political blowback against this plan haunted the John McCain-Sarah Palin campaign, particularly in union-friendly states in the Midwest where McCain performed poorly.

In 2009, a version of benefit taxation emerged in the frantic end days of the push for passage of the Affordable Care Act. Over the objections of many Democratic members of Congress, an “excise tax” of 40 percent was enacted in 2010 on employer-based health plans above $10,200 per individual and $27,500 per family. Its actual imposition was delayed until 2015, and after a couple further extensions, was completely repealed in 2019 through a bill I led in the House, which passed 419-6. Although its proponents argued the tax was not directed at employees, but rather employer plan administrators, it was quickly determined that such an exorbitant tax would inevitably degrade the value of health plans, particularly in high-cost states.

After the overwhelming repeal of the Cadillac tax in 2019, many health care stakeholders and analysts thought that was the last we would see of this spawn of Milton Friedman health care, but on March 20 the Republican Study Committee proved them wrong. The zombie has arisen again. So once again, the arguments against taxing benefits will be dusted off which clearly demonstrate the unfair tax burden on middle-class working people in every sector. Rather than improving health care access it will hinder both preventative and critical care medicine, since cost and risk is shifted heavily to the patient, who is incapable of self-diagnosing ailments, managing chronic illness or prescribing preventive screenings. Friedman’s romantic notion of individual control of one’s health care is divorced from the reality of 21st century medicine. It is time for Congress to put an end to this Republican zombie once and for all.

Rep. Joe Courtney is a Democrat who represents Connecticut’s 2nd District, a seat he has held since 2007. He is a member of the House Education and the Workforce Committee and its Health, Employment, Labor and Pensions Subcommittee.

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