Vol. LIV No. 5

Two Federally Subsidized Health Insurance Programs are One Too Many: Reconsidering the Federal Income Tax Exclusion for Employer-Provided Health Insurance in Light of the Patient Protection and Affordable Care Act

Abstract: Section 106 of the Internal Revenue Code (I.R.C.) provides a federal income tax exclusion for the value of employer-provided health insurance. This decades-old provision was enacted for the primary purpose of increasing the incidence of health insurance in the United States. Since its adoption, scholars have advanced a number of additional policy considerations in support of preserving this exclusion. The enactment of the Patient Protection and Affordable Care Act (ACA), however, will result in a significant overhaul of the American health care system. As a result, a reexamination of I.R.C. § 106 is warranted. This Note argues that the ACA has rendered each of the policy considerations in support of I.R.C. § 106 largely irrelevant, inapplicable, or generally less compelling— whereas the arguments in favor of repeal now seem all the more convincing. Nevertheless, policymakers should stop short of outright repeal because of a number of drawbacks that may prove unavoidable. Consequently, this Note proposes a middle ground that instead calls for significant reform. Converting the exclusion into a progressive, refundable tax credit would largely accomplish the goals sought by repeal, while still avoiding the negative repercussions that total repeal may engender.

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