Is the Employer Health Care Tax Exclusion Safe? Kerris Willis Shares Insight From American Benefits Council

Employers are navigating a complex landscape of health policy in 2025, with federal and state-level developments having implications for employer-sponsored health plans.

At the Greater Philadelphia Business Coalition on Health (GPBCH) Annual Conference, Kerri Willis, senior counsel for Health Policy at the American Benefits Council, set the stage for her presentation, "Curve Ahead: A View into the Legislative Agenda & Potential Impact for Employers," in Washington, DC, noting a period of significant transition marked by tight margins in Congress and substantial staff reductions within federal agencies. These factors, she explained, impact both the tone and substance of policy initiatives. With a Republican White House and Congress, the focus is heavily on reconciliation bills as a tool to enact priorities with a simple majority in the Senate, bypassing the usual 60-vote threshold.

Greater Philadelphia Business Coalition on Health Annual Conference 2025

Image Credit: GPBCH

"Changes to the tax treatment of employer-sponsored health care are coming up in the context of this reconciliation bill, because all of the spending provisions in the bill have to be paid for," she explained. "So, if the goal is to extend the tax cuts beyond the end of this year, that's going to cost a lot of money, [and] then there needs to be revenue to pay for that."

The current reconciliation package aims to extend tax credits passed during the first Trump administration and address other priorities like border security and defense spending. Notably, the House-passed version of the bill does not include changes to the tax exclusion for employer-sponsored health care, a critical point emphasized by Willis.

While this exclusion remains a significant target for revenue generation due to its size in the federal budget, its exclusion from the House bill offers a temporary reprieve. However, Willis cautioned that there's still a chance it could be included in the Senate's version, underscoring the need for continued vigilance by employers.

"Just to give you a few statistics around the impact of reducing the employer tax exclusion, they would be pretty widespread," she said. "So we, the American Benefits Council, commissioned a study with the Council of Insurance Agents and Brokers, and we found that limiting the tax exclusion to the 75th percentile of premiums would lead to 75,000 fewer jobs. It would reduce the GDP each year by $10 billion, and it would reduce after-tax compensation for employees by $75 billion each year. And that's in addition to impacts on the uninsured numbers and mortality rates."

However, the House bill does codify individual coverage Health Reimbursement Arrangement (HRA) rules, allowing employers to contribute to HRAs for employees to purchase individual market coverage, with guardrails to protect market stability. It also introduces provisions easing Health Savings Account (HSA) contributions for those covered under Medicare Part A, a spouse's Flexible Spending Account (FSA), or direct primary care arrangements.

Shifting to the regulatory landscape, Willis discussed the impact of new agency personnel and staff reductions on enforcement and guidance. While the Trump administration has issued targeted executive orders on price transparency, fertility benefits, and prescription drug coverage, the specifics of their implementation remain to be seen.

The directive on price transparency, for instance, seeks to mandate disclosure of actual prices, standardize information, and ensure compliance, aiming to produce meaningful data for employers to manage costs, Willis explained. Regarding fertility benefits, while a mandate for coverage seems unlikely, discussions are underway to make offering these benefits easier for employers, potentially by designating them as an accepted benefit not subject to all Affordable Care Act (ACA) requirements.

A significant development Willis addressed was the Trump administration's response to litigation concerning the Biden administration's non-quantitative treatment limit (NQTL) regulations for mental health parity. The administration has asked the court to suspend the litigation and announced a halt to enforcement of certain 2025 and 2026 requirements, signaling a reevaluation of these complex rules.

"I want to underscore that it doesn't mean you don't have to comply with any of the mental health parity requirements," she said. "There are still regulations that came out in 2013 around financial and quantitative treatment limits, so copays, coinsurance, and making sure there's parity between mental health benefits and medical benefits with respect to those requirements. And there's also still the comparative analysis requirement that was in the statute. We just don't have the regulatory language giving some more explanation of how to actually do it."

The presentation also delved into ongoing issues with the No Surprises Act, particularly the arbitration process, which has faced challenges with claim volume and formula disputes. On the judicial front, Willis highlighted critical Employee Retirement Income Security Act (ERISA) preemption cases.

The Supreme Court is currently considering whether to review a 10th Circuit decision that found an Oklahoma law restricting pharmacy benefit managers (PBMs) preempted by ERISA, with the Trump administration urging the Court not to hear the case, thereby allowing the ERISA preemption to stand. This ongoing battle between state-level PBM regulations and ERISA preemption is a significant concern for employers seeking uniform plan designs across multiple states.

When asked by the audience how employers can support maintaining the ERISA preemption, Willis discussed the importance of making the impact known.

"I think it's really about helping [legislators] understand how an erosion of ERISA preemption is going to impact costs for employers, impact costs for employees," she explained. "And then, just from a big picture perspective, if you start to erode ERISA preemption, does that take us down a path of now starting to erode the whole idea of employer-sponsored coverage, which wouldn't be good for employers or employees?"

Lastly, Willis touched upon recent court cases affecting the ACA's preventive care requirements and employer mandate enforcement, as well as the increasing influx of plan fiduciary litigation in the health and welfare space. She urged employers to review their fiduciary processes for vendor selection and oversight of prescription drug benefits, stressing the importance of documented prudent processes to mitigate legal risks.

"This is a really big deal for employers, and so if you haven't had the chance to take a look around about your fiduciary processes when it comes to your health and welfare plans, I would really encourage you to do that."

The insight from Washington, DC, that Willis shared at this meeting elucidated that the health policy landscape for employers remains highly dynamic, shaped by legislative actions, regulatory changes, and ongoing judicial developments. To navigate these complexities and ensure the provision of comprehensive and affordable health benefits, employers must stay informed, advocate effectively, and proactively review their internal processes, particularly regarding fiduciary responsibilities.