Human Capital & Careers

Healthcare Tax Subsidies Soar

In 2006, companies received a healthy payout from Uncle Sam for providing healthcare benefits to active workers.
Stephen TaubNovember 15, 2006

When the leaders of the three major U.S. automakers met with President Bush on Tuesday, one of the main topics of conversation was the spiraling cost of providing health care benefits to their employees. Indeed, the Associated Press pointed out that the Big Three spend more per vehicle on health care than steel. In fact, automakers stress that health care costs add roughly $1,000 to the cost of a car.

General Motors, the largest provider of health care benefits in the U.S., spent more than $5 billion last year for its 1.1 million employees, retirees, and their dependents, according to the wire service. However, outside of universal healthcare, there seems little more the president or any other government official can do for these companies. To be sure, according to a new study, total federal and state tax subsidies in 2006 for employment-related coverage of active workers will exceed $200 billion.

This is an inflation-adjusted increase of more than 150 percent since 1987, according to the study sponsored by the Department of Health and Human Services’ Agency for Healthcare Research and Quality, and reported in the November-December 2006 issue of Health Affairs.. The study projects that the increase in corporate subsidies means that in 2006 the average tax subsidy for each worker who is covered by employer-sponsored health insurance, regardless of type of employer, will be $2,778. The average tax subsidy per worker enrolled in a single-coverage plan will be $1,573, compared with $3,825 for a family-coverage plan.

The study also found the subsidy to be greater for employees of larger companies and employees for companies with high numbers of highly-compensated workers. For example, the average subsidy per worker in companies with 1,000 or more employees will be $1,886 in 2006, compared with $770 per worker in firms with fewer than 10 employees, noted the authors.

The average subsidy per covered worker in companies in which more than half the employees earn more than $23.07 per hour will be $3,283, compared with $2,268 per covered worker in companies in which the majority of employees earn less than $10.43 per hour.

The industries with the lowest per-worker subsidies include agriculture, fisheries, forestry, retail trade, and construction, with funding ranging from $781 to $1,189. The industries with the highest average subsidy—between $1,751 to $2,289—include financial services, utilities and transportation, real estate, and mining and manufacturing.