A big Republican health care fix proposed in 2005 and 2016 missing from current bill - why?

The House Republican plan to repeal and replace the Affordable Care Act (aka Obamacare) that was released on March 6 omits something that the House Republican health reform blueprint of June 2016 said would be included. The missing item is a big one, that if modified, would make the tax law more equitable, reduce health care spending, raise revenue (that could be used to help those without insurance), and help a lot of people know what their health insurance costs.

The missing change is to reduce the largest (most costly) tax benefit in the law - the exclusion for employer-provided health insurance. The House Republican blueprint for health reform stated that the annual cost is $266 billion a year (income and payroll taxes not collected due to the tax break). In June, they proposed to limit this exclusion to replace the "Cadillac" tax.

Here are observations made in the June plan on this generous tax break enjoyed by about 60% of employees (see June 2016 plan at page 15). I encourage you to read the full-text (about a page) as the Republicans lay out strong arguments why this generous tax break (enjoyed by about 60% of employees), should be pared back.

• The tax break has no cap (as do contributions to retirement plans). It is "unlimited and uncapped, so the federal subsidy is endless."
• The CBO says the annual cost of this subsidy (meaning tax revenue that doesn't get generated due to employees being able to exclude from income what their employers pay towards their health insurance) is $266 billion per year. (Note: This is the largest tax break in the tax system by far; other large ones, such as the mortgage interest deduction and lower rate for capital gains are less than half of the figure for the exclusion.)
• "CBO has estimated that the exclusion increases average premiums for employer-based coverage 10 to 15 percent above what it would have been without the benefit because" it incentivizes employers and employees to get more expensive plans.
• The tax benefit is regressive because it provides a greater savings to individuals in higher tax brackets.
• "Our plan proposes to cap the exclusion at a level that would ensure job-based coverage continues unchanged for the vast majority of health insurance plans. Only the most generous plans would see a difference."

My observations:

• The House Republican plan released in early March does not make the above change highlighted in their "A Better Way" plan and keeps the Cadillac tax, but postpones its effective date from 2020 to 2025.  [See these House Ways and Means links to the proposal - here and here.]
• While the March 2017 plan repeals the individual and large employer mandates and the ACA taxes (including a big tax break for the top 1% and even bigger for the to 0.1%), why did it keep the employer-provided exclusion as is despite saying last June that this provision was a problem and fixing it would be better than having the Cadillac tax? [For an overview of this tax, see IRC Section 4980I and the Tax Policy Center explanation.]
• I think there are two possible reasons why the House Republicans omitted any change to the health insurance subsidy employees get when their employer pays all or part of their health insurance costs: (1) They discovered that it has become an "entitlement" so is difficult to modify; or (2) They are waiting to cut it back later either in one of the three bills they say it will take to handle ACA repeal/replace or for tax reform to generate revenue for a rate cut.
• I have not yet seen a news reporter mention this exclusion.  In fact today on an MSNBC show, a reporter and commentator stated that a goal of the Republican plan and less funding for health care was to allow market forces to handle costs.  Well, the employer-provided health care exclusion is an intrusion on market forces.  Economists estimate that it drives up health care costs by encouraging employees to get more expensive plans and it removes the supply and demand effects that should exist. A quick example of that - if you have such coverage, you know the first question a doctor asks is if you have coverage and you never hear about prices. There is an excellent discussion of this in the 2005 final report of President Bush's Advisory Panel on Federal Tax Reform (pages 78-82). That's yet one more Republican plan that called for reducing this tax break to make the law more fair and to pay for lower tax rates! (The plan called for capping the exclusion amount and allowing those without employer-provided health coverage to get a deduction for a portion of their health insurance cost.)

What do you think?

source http://21stcenturytaxation.blogspot.com/2017/03/a-big-republican-health-care-fix.html