House Ways and Means Committee Chairman Kevin Brady (R-TX) today held a hearing to examine the tax code and its effect on our existing health care system. Members and witnesses discussed the challenges with outdated, inefficient, and unfair provisions in the tax code and explored opportunities to reform those provisions to increase access to the high-quality, affordable, portable health care options Americans deserve.

“Currently the tax code contains over a dozen health-related tax expenditures – all intended to help more Americans access health care by subsidizing many of the costs,” Chairman Brady said. “Unfortunately, using the tax code in this way also can have the opposite effect, increasing premiums and costing trillions of dollars in the process.”

As Manhattan Institute Senior Fellow Avik Roy explained:

“The present tax treatment of health care is the central flaw in our health care system.”

Members and witnesses talked about the largest health tax expenditure, which affects more than 150 million Americans insured through employer-sponsored health plans. Known as the employer exclusion, this tax incentive subsidizes the cost of health insurance bought through a job.

Explaining some of the challenges with the employer exclusion, Chairman Brady noted:

“At the time this provision was created, the labor market and the health insurance market both looked very different … how we can preserve and modernize this important tax incentive at work while also expanding tax benefits to Americans who seek additional health care choices. More specifically, how can we make this nearly 100-year old tax break more flexible so Americans can have a new, modern option – to choose a health plan that fits their needs and can travel with them to a new job, to start their own business, or to raise their family at home?”

As American Enterprise Institute Health Scholar Joseph Antos said:

“The key principle for reform is to make it possible for people, wherever they buy insurance, to have the same level of support.”

Roy agreed, noting:

“What’s really important, aside from making health care more affordable, is putting patients and workers more in control of their health care dollars. Today, those health care dollars are controlled by the government, by employers, by insurance companies, by drug companies. They’re not controlled by the consumer, by the worker, by the patient. And all of our efforts on tax reform are about putting the control back in the hands of that individual and those families.”

In his testimony, Antos said:

“Experts from across the ideological spectrum have long recognized the structural flaws of the tax exclusion as it is currently configured. The exclusion can be restructured to promote better insurance choices that lead to more efficient, higher value care … [capping the exclusion, for example,] represents a shift toward a more equitable system that could be implemented without disrupting the way most people purchase health insurance.”

Rep. Adrian Smith (R-NE) shared his own experience with the health insurance plan his first employer chose for him, noting that had he “shopped around” on the individual market, he could have selected a less expensive plan that better met his needs. He said:

“I certainly see policies today that discourage consumerism, and certainly discourage – well, prohibit – people from exercising what I would call freedom to decide what is the best coverage that would be there for their families or themselves as individuals.”

Rep. Smith then asked what policymakers could do to encourage consumerism and ensure patients have more quality choices. Roy replied:

“You have to have the patient in charge of the health care dollars, and health tax reform, which this committee is considering, is the central key step to achieving that goal.”

As Rep. Smith reiterated:

“We want consumers with their providers to be driving the bus, not the heavy hand of the federal government.”

Rep. Tom Reed (R-NY) highlighted his concerns with the government’s role in health care, noting:

“If we give that power to the employee, they might be in a better position to put market pressure on the system to drive the cost [of health care] down.”

Concluding the hearing, Chairman Brady said:

“I cannot emphasize enough: the employer-sponsored health insurance market is a vital one. The question we must wrestle with is how we can sustain this option while advancing reforms that make the tax code fairer and health care more affordable for all Americans. This Committee will continue to protect and expand opportunities for Americans who want to take control of their health care dollars.”