Tax Subsidies for Private Health Insurance

Who Currently Benefits and What are the Implications for New Policies?

Higher-income workers benefit far more from the current ESI tax subsidy than lower-income workers. First of all, they are in higher tax brackets. A worker in the 28 percent tax bracket saves 28 percent of the premium cost, while a worker in the 15 percent bracket saves only 15 percent.

They also are more likely to have ESI. Almost 90 percent of workers with income three times the poverty level or higher have ESI, compared to less than one-third of workers with income below the poverty level. In addition, employers of higherincome workers pay a larger percentage of the premium on average, translating into a larger tax exemption for those employees.

Finally, higher-income workers tend to have more coverage—multiple policies, richer benefits, and family
rather than individual coverage—increasing premiums and the value of the tax exemption. Lower-income workers benefit only slightly from the income tax  exemption and the Medicare payroll tax exemption. They benefit in the short run from the Social Security payroll
tax exemption, but it hurts them in the long run by reducing their retirement income.

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