While political debates often focus on direct government spending for the Affordable Care Act (ACA), a new report from KFF reveals that the vast majority of Americans receive federal subsidies for health coverage, primarily through “invisible” tax breaks for employer-sponsored plans.
The single largest “exclusion” in the federal budget—a policy allowing specific income to remain exempt from taxes—is the contribution made to employer-sponsored health plans. This fiscal year, that amount is estimated at $451 billion, according to the Joint Committee on Taxation and the Congressional Budget Office.
“The vast majority of people with health insurance get some kind of federal subsidy for it, from Medicaid to Medicare to the ACA to employer-sponsored insurance,” said Larry Levitt, executive vice president for health policy at KFF.
Unlike direct government checks, these subsidies function by allowing employers to write off health coverage as a business expense while workers avoid income and payroll taxes on the value of the benefit. However, because employees still pay a portion of their premiums, the benefit is often overlooked.
“It doesn’t necessarily feel like a subsidy to people,” Levitt noted. “They do feel like they’re paying”.
Michael Cannon, director of health policy studies at the Cato Institute, described the mechanism as distinct from direct spending. “It’s a world apart from Medicare, Medicaid, and Obamacare — from the government writing checks to people,” Cannon said. He argued that the current system effectively allows employers to control a large chunk of worker earnings.
Conversely, Elizabeth Mitchell, CEO of the Purchaser Business Group on Health, defended the role of employers in negotiating costs. She also disputed theories that generous plans lead to over-utilization of care. “People don’t shop for health care because they want more of it. They use health care because they need it. It’s fundamentally different,” Mitchell said.
Despite the massive scale of these subsidies, the tax exclusion has faced criticism for forty years. “It’s had a bipartisan target on its back for 40 years,” said Paul Fronstin, a director at the Employee Benefit Research Institute. However, any change would likely result in a tax increase for workers, leading to unpredictable shifts in wages.
While the KFF report highlights the extensive tax benefits baked into the traditional insurance system, advocates for alternative models point to a significant legal disparity. Currently, the 1.7 million Americans participating in Health Care Sharing Ministries (HCSMs) are largely excluded from these federal tax advantages.
Healthsharing is not insurance and HCSM’s operate as nonprofit, faith-driven organizations that facilitate member-to-member sharing of medical expenses. The focus is not on corporate profit but on community care. Members make set monthly contributions, which are then shared to support another member’s eligible medical needs.
Under existing law, healthshare members are generally unable to deduct their monthly contributions as medical expenses. Supporters of the Health Care Sharing Ministry Tax Parity Act argue that this constitutes discrimination against those who choose faith-based, non-insurance alternatives.
By not granting tax parity, the current tax code effectively penalizes individuals who opt out of the corporate insurance model in favor of community-driven sharing programs. Advocates argue that modernizing the tax code is essential to level the playing field ensuring that Americans who collectively share over $1 billion in medical expenses annually receive the same tax considerations as those in traditional plans.
“The Health Care Sharing Ministry Tax Parity Act—would simply allow healthsharing members to deduct their monthly contributions as medical expenses, just as those with traditional insurance can deduct their premiums,” says Christopher Jin, President of WeShare by UHSM, a healthsharing ministry.
“The passing of this legislative effort would ensure that all Americans who choose a viable healthcare alternative are treated equally under the law. This existing inequity is just wrong and this change is frankly, long overdue,” he added.
Jin, like other supporters of tax parity, notes that the legislation would have a positive and fair impact on hundreds of thousands of Americans.
“This simple act of legislative parity validates the choice of the estimated 1.7 million Americans who participate in health sharing and collectively assist with sharing over $1 billion in medical expenses each year. And the timing is perfect. Because now, more than ever, Americans need a fair choice,” he said.
The act has bi-partisan sponsors – U.S. Reps. Mike Kelly (R-PA) and Greg Murphy, M.D. (R-NC).
“Expanding options for Americans to cover health care costs is essential to consumer freedom and creating competition in the marketplace,” said Congressman Murphy.
“Individuals who opt to utilize health care sharing ministries deserve the same tax benefits those who have traditional health insurance enjoy,” he added.
“Unfairly, Americans have been historically penalized by the tax code when they chose to use faith-based health care sharing ministries to meet their healthcare needs. The Health Care Sharing Ministry Tax Parity Act will remedy this problem, ensuring Americans are no longer disadvantaged by the tax code for their religious beliefs,” said Rep. Smith.