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Taxing Health Benefits Would Lead to Less Coverage, Study Says

By Caitlin McGlade, CQ Staff

December 20, 2012 – More than half of American workers whom the Employee Benefit Research Institute surveyed would switch to a less costly health benefits plan, shop for others or drop coverage altogether if the government began taxing health benefits.

The nonpartisan group's poll found that 26 percent of workers getting employment-based insurance would find a cheaper plan, 21 percent would shop for coverage directly from insurers and 9 percent would drop coverage if health benefits were taxed. Four in 10 of the respondents said they would stick with their current plans.

Lawmakers have considered a number of proposals over the past few years that would tax health benefits to help pay for the health care overhaul or fill revenue gaps. Sen. Max Baucus, D-Mont., suggested a tax on generous employer-provided health benefits in 2009, but his notion was met with sharp criticism by his own party. The Simpson-Bowles proposal included language phasing out tax breaks for employer-sponsored health insurance.

Sen. John McCain, R-Ariz., talked of replacing the tax-exempt status of employer health coverage with refundable tax credits. President Barack Obama fought the suggestion but then proposed a benefits tax on the top earners in 2011.

Study author Paul Fronstin has continued to measure public opinion on the topic annually because he expects that the tax break isn't safe in years to come.

"The fact is, given the longer-term financial issues of the budget, it's hard to imagine that the tax treatment of health benefits won't be a target," Fronstin said in an interview.

Fronstin's team randomly called about 800 people as part of the Health Confidence Survey, a poll that has been taken since 1998.

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