Many health analysts believe that exempting employer-provided health coverage from taxation encourages overspending on health care, as well as depriving the federal budget of revenue.
Some have proposed making health coverage subject to social security payroll taxes; that is, health coverage would count as earned income when it is provided, and so workers would pay taxes on it. Health coverage also would count as earnings when benefits are calculated, so benefits would increase as well.
Eliminating the tax preference for employer-sponsored insurance would improve the government’s overall financial condition as well as the health of the Social Security trust fund. But the increase in Social Security benefits would affect different earnings groups in very complicated ways. And while the Social Security Trust Fund would be strengthened by higher payroll taxes, that improvement would be mitigated by an increase in benefits.