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Illustration: Annelise Capossela/Axios
There's been a lot of talk about Medicare's role in government health care spending, but what doesn't often come up is federal spending on employer insurance — or more accurately, the tax revenue that the government gives up.
Why it matters: Reducing the tax break for employer-sponsored insurance would save the federal government hundreds of billions of dollars, but there's a reason that idea doesn't get pitched very often: Voters would almost certainly hate it.
Driving the news: The Congressional Budget Office published a presentation this week on "Health Care and the Federal Budget" that included CBO and JCT's projection that federal subsidies — or what the government spends — for employment-based coverage and for Medicare will nearly double between 2023 and 2033.
- Total subsidies for both programs will grow, on average, by 7% a year during that time frame.
- It's well known that the aging population will contribute to Medicare's cost growth, in addition to increased per-person spending.
- But for employer insurance, growth "is driven primarily by increases in the average subsidy per person that result from premium growth and scheduled increases in tax rates," CBO writes.
The big picture: CBO has previously said that reducing tax breaks on employer insurance could save $500 billion to $893 billion over a decade.
- For comparison's sake, CBO said capping federal spending on Medicaid would save roughly the same amount of money.
Between the lines: The rising cost of employer health insurance often makes headlines for its impact on businesses as well as workers, who increasingly can't afford care thanks to growing out-of-pocket costs.
- Just this week, KFF released its latest annual survey of employer coverage, which found that the average cost of premiums for family coverage reached nearly $24,000 this year — a 7% jump from 2022.
- Employers' contributions to those premiums aren't taxed as income, which means rising premiums result in a growing federal subsidy for employer insurance.
What they're saying: "Any policy that jeopardizes [health care] benefits will be about as popular as cutting Medicare benefits would be," said former Budget Committee Chairman John Yarmuth, who returned to the committee this week as a witness for a hearing on the need for a fiscal commission.
- "There hasn't been any serious effort to eliminate or curtail the tax subsidy for employer-provided health insurance, and any attempt would likely provoke quite a backlash," said KFF's Larry Levitt.
Yes, but: Limiting lost revenue from employer insurance doesn't necessarily mean exempting fewer benefits. Insurance could also just get cheaper.
- "If there were some federal action to reduce health care costs, such as through lower hospital or drug prices, the federal tax subsidy for employer health insurance would go down," Levitt said.
