It will cost the federal government $685 billion this year to subsidize health insurance for people under 65. Of that, $272 billion will go to those with some form of employer-sponsored coverage. In addition, the nonpartisan Congressional Budget Office says net subsidies for those covered by employers will total $3.7 trillion over the 2019–2028 period. The Joint Committee on Taxation contributed to the study.
For those with employer-based coverage, the subsidies are not direct but come in the form of untaxed benefits. As the CBO notes, employer payments for workers’ coverage are a form of compensation, but unlike salary or wages they are excluded from income and payroll taxes. Moreover, in most cases, employee premium contributions are also excluded from taxes. Many economists have argued that the tax treatment of benefits is one of the reasons that this country spends so much more on health care than others.
The most common source of insurance for noninstitutionalized people under 65 is either a current or former employer. The CBO estimates that a monthly average of 158 million Americans (about 58% of the population under age 65) have employer-based insurance this year. That’s expected to decline to 154 million (or 55% of the population) by 2028.
In addition, there is the income tax deduction for health insurance premiums that can be used by self-employed people, including sole proprietors and coalitions of workers. Some small employers providing health insurance can receive up to 50% of the cost of that insurance.
The next largest health insurance provider for people younger than 65 is Medicaid. The study estimated that this year a monthly average of 61 million noninstitutionalized people will receive full Medicaid benefits. Subsidies for this group will total $4 trillion between 2019 and 2028.