The Regressivity of Taxing Employer-Paid Health Insurance

Abstract

Many health economists, ranging from Democratic advisor Jonathan Gruber¹ to the Heritage Foundation,² have argued that tax subsidies for employer-paid health insurance encourage over-insurance and are highly regressive, directed mainly to higher-income families. We beg to differ. The subsidies meet the usual definition of progressivity: they taper down (as a percentage of income) as income rises. Ending them would inflict a regressive tax increase, taking a larger share of income from insured near-poor and middle-class families than from the wealthy.