Employer-Sponsored Health Plans Spent $814B on 2019 Benefits

Employer-sponsored health plans spend over $5 on healthcare benefits for every $1 lost in tax revenue due to tax exemptions, which demonstrates the advantages of employer-sponsored health plans for Americans, the American Benefits Council argued in a statement.

“Americans highly value employer-provided health coverage, but they and lawmakers may not fully understand its economic value. Public policy should build on the employer-sponsored system so more people can share in that value,” said James A. Klein, president of the American Benefits Council.

The American Benefits Council assessed employer spending from 2019 using data from the Joint Committee on Taxation’s Estimates of Federal Tax Expenditures For Fiscal Years 2019-2023 alongside the Bureau of Economic Analysis’ National Income and Product Accounts Table 6.11.

In a simple calculation, the American Benefits Council compared what employers spent on healthcare coverage in 2019 to how much the federal government lost in tax revenues due to the employer tax exemption for covering health insurance.

According to the Joint Committee’s tax data, the tax exemptions for employer contributions to healthcare coverage totaled $152.5 billion. This means that employers retained $152.5 billion because they covered premiums, healthcare, and long-term care insurance premiums. 

Put another way, in a system without a tax exemption for employer-sponsored health insurance, the federal government might have received an additional $152.5 billion in tax revenue in 2019.

However, American Benefits Council argued that employer-sponsored health plans saved the federal government more expense than the government lost in tax revenue. 

The Bureau of Economic Analysis’s data showed that employers spent $813.9 billion on group health insurance coverage in 2019. As a result, for every $1.00 that the US government lost in revenue due to tax exemptions for employer-sponsored health plans, employees received $5.34 in healthcare benefits through their employers.

“It is no surprise that public polls reveal the popularity of job-based health coverage, because we all know it is the high-quality, affordable coverage that people want to keep,” Klein said. “Less well known is that employer-provided health coverage is an enormous bargain for American taxpayers.”

These findings are highly relevant in the context of policymakers’ recent efforts to expand access to healthcare coverage and reduce the nation’s massive amounts of healthcare spending.

“Those policymakers who advocate scrapping employer-sponsored health coverage should be aware that it would cost enormously more to provide the same level of financial security for health care needs exclusively directly through government programs than it does to incentivize tax-favored employer-sponsored coverage,” noted Klein.

Klein urged policymakers to consider the potential impacts to employer-sponsored health plans as they determined the role of government in shouldering healthcare costs.

“Any discussion of a ‘public option’ should include an understanding of the highly efficient private system. Well-intended proposals to provide coverage options must not disturb the innovative and effective employer system,” Klein said.

The American Benefits Council’s statement also promoted policies that could reduce healthcare spending. Klein named cost and quality transparency and urged policymakers to crack down on anti-competitive practices.

Additionally, Klein mentioned health savings accounts as a potential cost-saver that policymakers should support, which have been growing in popularity over the last decade. According to the US Bureau of Labor Statistics, the share of private employees who had access to health savings accounts has grown from 14 percent in 2010 to 30 percent in 2019.

Employers are largely in agreement that the nation’s current healthcare spending trajectory is unsustainable, a recent Kaiser Family Foundation survey showed. A range of solutions appealed to employers, including implementing a public option which 47 percent of employer respondents approved.

Individual states’ efforts have indicated that it is possible for the government to take on a greater role in administering healthcare without supplanting cost-effective employer-sponsored health plans. 

For example, the state of California substantially increased state-sponsored healthcare coverage for noncitizen children. The uninsurance rate for noncitizen children dropped 34 percent. The state accomplished this without significantly impacting employer-sponsored healthcare coverage.