Tax Benefits for Health Insurance and Expenses: Overview of Current Law

Janemarie Mulvey
Specialist in Aging and Income Security

How tax policy affects health insurance and health care spending is a perennial subject of discussion in Washington. The issue is prompted by the size of the tax benefits, by their effect on the cost and allocation of health care resources, and by interest in comprehensive tax reform.

Current law contains significant tax benefits for health insurance and expenses. By far the largest is the exclusion for employer-paid coverage, which employees may omit from their individual income taxes. The exclusion also applies to employment taxes and to health benefits in cafeteria plans. (The exclusion should be distinguished from the deduction employers may take for the payments they make and other costs they incur.) Other important tax benefits include the following: 

• ·         Self-employed taxpayers may deduct 100% of their health insurance, even if they do not itemize deductions and taxpayers who itemize may deduct insurance payments and other unreimbursed medical expenses to the extent they exceed 7.5% of adjusted gross income; 

• Some workers eligible for Trade Adjustment Assistance or receiving a pension paid by the Pension Benefit Guarantee Corporation can receive the Health Coverage Tax Credit (HCTC) to purchase certain types of insurance; 
• Four tax-advantaged accounts are available to help taxpayers pay their health care expenses: Flexible Spending Accounts, Health Reimbursement Accounts, Health Savings Accounts, and Medical Savings Accounts; 
• Voluntary Employees’ Beneficiary Association plans (VEBAs) are vehicles for prefunding retiree health benefits on a tax-advantaged basis for certain groups of workers, particularly unionized workers; and 
• Coverage under Medicare, Medicaid, CHIP, and military and veterans health care programs is not considered taxable income. 

By lowering the after-tax cost of insurance, these tax benefits generally help extend coverage to more people; they also lead some people to obtain more coverage than they otherwise would. The incentives influence how coverage is acquired: the uncapped exclusion for employer-paid insurance is partly responsible for the predominance of employment-based insurance in the United States. In addition, the tax benefits increase the demand for health care by enabling insured people to obtain services at discounted prices; this in turn contributes to rising health care costs. When insurance is viewed as a form of personal consumption, most tax benefits appear to be inequitable because taxpayers’ savings depend on marginal tax rates. When viewed as spreading catastrophic economic risk over multiple years, however, basing those savings on marginal rates might be justified as the proper treatment for losses under a progressive tax system.

This report details the current law for various tax benefits for health insurance coverage and identifies changes in certain provisions affected by the Patient Protection and Affordable Care Act (PPACA; P.L. 111-148).


Date of Report: January 11, 2011
Number of Pages: 20
Order Number: RL33505
Price: $29.95

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USDA Rural Housing Programs: An Overview

Bruce E. Foote
Analyst in Housing Policy

Title V of the Housing Act of 1949 authorized the Department of Agriculture (USDA) to make loans to farmers to enable them to construct, improve, repair, or replace dwellings and other farm buildings to provide decent, safe, and sanitary living conditions for themselves or their tenants, lessees, sharecroppers, and laborers. USDA was also authorized to make grants or combinations of loans and grants to those farmers who could not qualify to repay the full amount of a loan, but who needed the funds to make the dwellings sanitary or to remove health hazards to the occupants or the community.

While the act was initially targeted toward farmers, over time the act has been amended to enable USDA to make housing loans and grants to rural residents in general. Currently, the USDA housing programs are administered by the Rural Housing Service (RHS). The housing programs are generally referred to by the section number under which they are authorized in the Housing Act of 1949, as amended.

The rural housing programs include loans for the purchase, repair, or construction of singlefamily housing; loans and grants to remove health and safety hazards in owner-occupied homes; loans and grants for the construction and purchase of rental housing for farmworkers; loans for the purchase and construction of rental and cooperative housing for the elderly and for rural residents in general; rental assistance payments to make rental housing more affordable; interest subsidies to make homeownership loans more affordable and to enable production of rental housing that is affordable for the target population; and loans for developing building sites upon which rural housing is to be constructed.

The collapse of the mortgage market in 2007 has resulted in an increased demand for home loans that are insured or guaranteed by the federal government, including the USDA Section 502 guaranteed home loans. By May 2010, the FY2010 funding for the USDA guaranteed loan program was exhausted.

As enacted on July 29, 2010, the 2010 Supplemental Appropriations Act, P.L. 111-212, authorized additional appropriations for Section 502 guaranteed loans for the remainder of FY2010. The act also permits USDA to charge lenders a guarantee fee of up to 3.5% of the mortgage amount. In addition, lenders may be charged an annual fee of 0.5% of the mortgage balance for the life of the loan. These changes in the guarantee fees are intended to enable the Section 502 guaranteed home loan program to operate with little or no need for positive credit subsidies in FY2011 and beyond.

Since no appropriations legislation was enacted before the beginning of FY2011, the 111th Congress enacted a series of continuing resolutions (CR) to continue funding at the FY2010 level for most accounts in the federal budget (including all of the accounts in USDA’s budget). The latest CR (P.L. 111-322) is slated to expire at the earlier of March 4, 2011, or enactment of FY2011 appropriations legislation.


Date of Report: January 11, 2011
Number of Pages: 21
Order Number: RL33421
Price: $29.95

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Small Business Administration: A Primer on Programs

Oscar R. Gonzales
Analyst in Economic Development Policy

The Small Business Administration (SBA) administers several programs to support small businesses, including loan guarantee programs to enhance small business access to capital; contracting programs to increase small business opportunities in federal contracting; direct loan programs for businesses, homeowners, and renters to assist their recovery from natural disasters; and small business management and technical assistance training programs to assist business formation and expansion.

Congressional interest in the SBA’s loan and contracting programs has increased in recent years, primarily because small businesses are viewed as a means to stimulate economic activity, create jobs, and assist in the national economic recovery. Many Members of Congress also regularly receive constituent inquiries about SBA loans, the loan guarantee programs, and special contracting programs and this report provides an overview of these programs. In addition, the SBA’s authorization is scheduled to expire on January 31, 2011.

This report is designed to assist Congress in the event that it considers the reauthorization of the SBA by providing a summary and analysis of the SBA’s major programs, including changes made by the American Recovery and Reinvestment Act (P.L. 111-5) and the Small Business Jobs Act of 2010 (P.L. 111-240), and by referencing other CRS reports which examine these programs in greater detail.

This report will be updated to reflect legislative action and programmatic changes.


Date of Report: January 20, 2011
Number of Pages: 24
Order Number: RL33243
Price: $29.95

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Income Inequality in the United States: Trends and International Comparisons

Linda Levine
Specialist in Labor Economics

The recent recession, which has been followed by an unemployment rate persistently near 10% since the recovery’s start in June 2009, has meant reduced wages and salaries for many of the workers who lost jobs. This, among other things, has drawn attention to the long-term trend of growing inequality in the distribution of income across U.S. households—a trend that has been present when unemployment was less pervasive and the economy was expanding strongly. That is to say, even when the economy was growing, economic benefits accrued unevenly.

Existing measures of income fall short of accurately indicating the economic well-being of one household compared to another. The Census Bureau omits some sources from its official measure of income, for example. Taking the existing measure of money income at face value, however, several observations can be made concerning income inequality based on the bureau’s annual calculation of the distribution of total income by household quintile (fifth). If income were equally divided across households with income, each quintile would account for 20% of total income. The bottom fifth of households has accounted for much less than the one-fifth of total income it would get if the distribution were perfectly even. Its share of income stagnated during the 1970s, slowly fell through 2003, and has again stagnated at a lower income share (3.4% in 2009 compared with 4.2% in 1968). In contrast, the income shares of the top fifth and the top 5% of households in the distribution generally have risen throughout the 40-year period. The top fifth’s share grew from 42.6% in 1968 to 50.3% in 2009; the top 5%’s share grew from 16.3% to 21.7%. The middle class, as represented by the three middle quintiles, experienced a decrease in its income share from 53.2% in 1968 to 46.4% in 2009.

Various explanations have been offered for the increasingly uneven distribution of income across U.S. households in recent decades. Skill-biased technological change and globalization are the two leading hypotheses. Economists generally have found the former to be more persuasive.

The limited income data that are comparable internationally suggest that the U.S. income distribution is among the most uneven of all major industrialized countries. Various cross-country studies have found the most equal distributions of income exist in Scandinavia, followed by Central Europe and Southern Europe. English-speaking countries, with the exception of Canada, appear to have the highest levels of income inequality. In terms of the trend in income inequality since the 1970s, the United States, United Kingdom, and Italy were estimated to have experienced the greatest increase. Sweden, Finland, and Norway were found to have experienced the smallest increase in recent decades. In between were Germany, Australia, and the Netherlands.

There are three leading explanations for these international differences. First, other advanced economies devote a larger share of national output to transfers that equalize income across households. Second, the progressivity of tax rates varies by country and thus has different effects on equality of the distribution of after-tax income. Third, equality in the distribution of earnings, which account for most household income, varies substantially across countries.


Date of Report: January 10, 2011
Number of Pages: 17
Order Number: RL32639
Price: $29.95

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Social Security: The Government Pension Offset (GPO)

Alison M. Shelton
Analyst in Income Security

The Government Pension Offset (GPO) applies to Social Security spousal and survivor benefits, which are generally payable to the spouses and survivors of retired, disabled, or deceased workers covered by Social Security. The Social Security spousal benefit is equal to 50% of the retired or disabled worker’s benefit and the survivor benefit is 100% of the deceased worker’s benefit.

Social Security spousal benefits were established in the 1930s to help support wives who are financially dependent on their husbands. It has since become more common for both spouses in a couple to work, with the result that, in more cases, both members of a couple are entitled to Social Security or other government pensions based on their own work records. Social Security generally does not provide both a full retired-worker and a full spousal benefit to the same individual.

Two provisions are designed to reduce the Social Security spousal benefits of individuals who are not financially dependent on their spouses because they receive benefits based on their own work records. These are 

• the “dual entitlement” rule, which applies to spouses who qualify for both (1) a Social Security retired or disabled worker benefit based on their own work histories in Social Security-covered employment and (2) a Social Security spousal benefit based on a spouse’s work history in Social Security-covered employment; and 
• the GPO, which applies to spouses who qualify for both (1) a government pension based on their own non-Social Security-covered government employment and (2) a Social Security spousal benefit based on a spouse’s work history in Social Security-covered employment. 

The GPO reduces Social Security spousal benefits by two-thirds of the pension from noncovered government employment. The GPO does not reduce the benefits of the spouse who was covered by Social Security.

Opponents contend that the GPO provision is basically imprecise and can be unfair. Defenders argue it is the best method currently available for preserving the spousal benefit’s original intent of supporting financially dependent spouses, and also for eliminating an unfair advantage for spouses working in non-Social Security-covered employment compared with spouses working in Social Security-covered jobs (who are subject to the dual entitlement rule).


Date of Report: January 18, 2011
Number of Pages: 18
Order Number: RL32453
Price: $29.95

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