Key Elements of the U.S. Tax System

The federal government spent nearly $1.2 trillion on health care in fiscal year 2019 (table 1). Of that, Medicare claimed roughly $644 billion, Medicaid and the Children’s Health Insurance Pro-gram (CHIP) about $427 billion, and veterans’ medical care about $80 billion. In addition to these direct outlays, various tax provisions for health care reduced income tax revenue by about $234 billion. Over $152 billion of that figure comes from the exclusion from taxable income of employers’ contributions for medical insurance premiums and medical care. The exclusion of employer contributions to medical care also substantially reduced payroll taxes, though that impact is not included in official tax expenditure estimates. Including its impact on both income and payroll taxes, the exclusion reduced government revenue by $273 billion in 2019.

Updated May 2020