The Congressional Budget Office (CBO) recently reported that under current federal income tax rules, employer-sponsored health plans could receive trillions in subsidies over the next decade. CBO analysts prepared the 2026 report with staff analysts from the congressional Joint Committee on Taxation (JCT).
More specifically, the report states that these plans could be entitled to $6.6 trillion in subsidies over the next decade and $7.1 trillion over the next 11 years. These subsidy amounts are about 25% higher than the amounts the CBO forecast in a similar report issued in 2023. Both the 2023 and 2026 reports include employer subsidy value estimates for 2026, which are about 4% higher than the one-year subsidy value estimate issued in the 2023 report.
Furthermore, the estimated value of the employer health tax exclusion in 2026 is $471 billion. Factors contributing to the rise in the employer health tax exclusion subsidy include higher healthcare service costs, greater incidence of care sought by plan enrollees, and increased plan enrollment.
Notably, the methods CBO/JCT analysts use to calculate the employer health tax subsidy value differ from those the U.S. Treasury Department and Office of Management and Budget analysts use to calculate “tax expenditures” tables annually. These tables indicate how tax rules affect the budget deficit. For 2026, the estimated tax expenditure for the employer health exclusion is $296 million.
The figures issued in the CBO/JCT report may affect proposals by senators and representatives to change tax rules for health savings accounts, long-term care insurance, and similar products. Likewise, these figures may affect employers' and insurers' ability to protect current federal employer health benefit tax rules in the future.
As part of the Affordable Care Act (ACA), Congress implemented a “Cadillac plan tax” on high-value health benefit arrangements. In practice, however, the IRS rarely enforced the tax, and ultimately, Congress repealed the provision.
Historically, many members of Congress have opposed reduction of the employer health tax exclusion. However, some have suggested that exclusion caps could reduce the budget deficit, pay for new programs, or create new tax incentives.
HBL has experience in all areas of benefits and employment law, offering a comprehensive solution to all your business benefits and HR/employment needs. We help ensure you are in compliance with the complex requirements of ERISA and the IRS code, as well as those laws that impact you and your employees. Together, we reduce your exposure to potential legal or financial penalties. Learn more by calling 470-571-1007.
