Reduce Tax Subsidies for Employment-Based Health Insurance

Background

The federal tax system provides preferential treatment for health insurance that people buy through an employer. That treatment applies to payments and contributions made both by employers and by employees. Unlike cash compensation, employers' payments for their employees' health insurance premiums are excluded from income and payroll taxes. For about 90 percent of workers enrolled in employment-based coverage, the amount they pay for their share of health insurance premiums is also excluded from income and payroll taxes. Those workers are enrolled in what are often referred to as cafeteria plans, which allow them to choose between a taxable benefit, such as cash wages, and nontaxable fringe benefits.

The federal tax system, as well as most state tax systems, also subsidizes health care costs not covered by insurance by excluding from income and payroll taxes the contributions made to various health spending accounts that employees can use to cover those costs. Examples include employees' contributions to flexible spending arrangements (FSAs), employers' contributions to health reimbursement arrangements (HRAs), and employers' and employees' contributions to health savings accounts (HSAs). On average, the exclusion from taxation of premiums and contributions to health spending accounts provides larger subsidies for people who have higher income (and, generally, higher tax rates) or more expensive health insurance plans.

By subsidizing employment-based health insurance, the tax exclusion encourages firms to offer a more generous benefit package to recruit and retain employees. The exclusion also encourages workers to enroll in employment-based insurance rather than other types of insurance, such as that obtained through the nongroup market. (The nongroup health insurance market is the private market in which individuals and families purchase health insurance directly from an insurer rather than obtaining it through a group purchaser, such as an employer or a union.) The exclusion also encourages firms to offer health coverage with lower cost sharing (such as plans without a deductible), more covered services, and broader provider networks. In 2019, according to the Medical Expenditure Panel Survey, 85 percent of private-sector employees worked for an employer that offered health insurance coverage; 78 percent of those employees were eligible for that coverage (the rest were ineligible for various reasons, such as working only part time); and 73 percent of those eligible workers chose to enroll in a plan offered by their employer. Most eligible workers who choose not to enroll in a plan offered by their employer are covered by a plan offered by the employer of a spouse or parent. In 2022, the Congressional Budget Office estimates, 58 percent of Americans under the age of 65, or 156 million people, have health insurance based on their own employment or the employment of a family member.

The favorable tax treatment of employment-based health benefits is one of the federal government's largest tax expenditures. (Tax expenditures are exclusions, deductions, preferential rates, deferrals, and credits in the tax system that resemble federal spending in that they provide financial assistance for specific activities, entities, or groups of people.) Including effects on both income taxes and payroll taxes, that expenditure is projected to total $641 billion in 2032.

This option would limit the exclusion of employment-based health insurance from taxation, thereby increasing tax revenues and reducing federal deficits. That approach would largely preserve the current-law structure that gives preferential tax treatment to employment-based coverage. Other approaches to subsidizing employment-based coverage that are not considered here could also be structured to raise additional revenue and would present different trade-offs. For example, a flat refundable tax credit would provide an incentive for people to take up health insurance and would not influence the type of insurance or provide larger subsidies to workerswith higher income or more expensive insurance plans.

Key Design Choices

If lawmakers wanted to reduce the tax subsidies for employment-based health insurance by limiting the tax exclusion, they would face a number of decisions about how to do so. Those key design choices include the following:

• Whether to subject only contributions to health insurance premiums to taxation or whether to also include contributions to various health spending accounts, such as FSAs, HRAs, and HSAs;
• Whether to set a limit on how much of those contributions can be excluded from taxable income or fully eliminate the tax exclusion; and
• Whether to subject the contributions to income taxes, payroll taxes, or both.

What Types of Contributions to Tax. One decision facing lawmakers would be whether to tax only the contributions that employers and employees make to health insurance premiums or whether to also tax payments to accounts such as FSAs, HRAs, and HSAs. Taxing all health-related contributions would raise more revenue than subjecting only premium contributions to taxation. Taxing only premium contributions would create an incentive for employers to contribute more to those other health-related accounts and less to premiums to avoid taxes.

Whether to Fully or Partially Eliminate the Tax Exclusion. Another decision facing lawmakers would be whether to tax all contributions, thereby eliminating the exclusion, or only some of them. For example, the exclusion could be retained, but with an upper limit that applied to all taxpayers, or the exclusion could be phased down for higher-income workers. Such limits could also be allowed to vary according to the composition of an employer's workforce. That is, certain workforce characteristics—such as age, sex, occupation, or location—that are associated with workers' average health care costs could be taken into consideration when setting the limit for a firm. In general, making a larger share of premium contributions subject to taxation (through lower limits on the exclusion) would lead to a larger increase in revenues relative to current law.

Additionally, if a limit was placed on the exclusion, lawmakers would need to decide whether and how to increase that limit over time. If the limit was indexed to the rate of inflation for health insurance premiums, then a roughly constant share of plan premiums would exceed the limit and be subject to some taxation. The limit could also be indexed to the rate of overall inflation for all goods and services, which has tended to be lower than the growth rate of health insurance premiums. If the limit did increase more slowly than premiums, an increasing share of plans would be affected by the option over time.

What Types of Taxes to Impose. Lawmakers would also need to decide whether to subject the contributions to income taxation, payroll taxation, or both. On average, workers enrolled in employment-based plans face higher federal income tax rates than payroll tax rates. CBO and the staff of the Joint Committee on Taxation (JCT) estimate that those workers' average marginal income tax rate—the percentage of an additional dollar of income that is paid in income taxes—would be about 18 percent in 2026, whereas their average marginal payroll tax rate (including both the employer's and the employee's shares of payroll taxes) would be about 14 percent. Therefore, subjecting contributions to income taxation would raise more revenue than subjecting them to payroll taxation, all else being equal, and doing both would raise the most revenue. Because higher-income workers face higher income tax rates, subjecting contributions to income taxation only would raise a greater share of revenue from higher-income households than would subjecting contributions to both payroll and income taxes.

Option

This option consists of three alternatives that would limit the tax exclusion for contributions to health insurance premiums and health spending accounts. Each of those alternatives would go into effect in January 2026:

• Under the first alternative, the exclusion of all health-related contributions from income and payroll taxes would be limited to the 50th percentile of employment-based health insurance premiums and then indexed for overall inflation in subsequent years.
• Under the second alternative, that exclusion from income and payroll taxes would be limited to the 75th percentile of premiums and then indexed for overall inflation in subsequent years.
• Under the third alternative, the exclusion from income taxes would be limited to the 50th percentile of premiums and indexed for overall inflation in later years, but the exclusion from payroll taxes would continue without limit.

Limit the Income and Payroll Tax Exclusion to the 50th Percentile of Premiums. The first alternative would impose a limit on the extent to which employers' and employees' contributions for health insurance premiums—and to FSAs, HRAs, and HSAs—could be excluded from income and payroll taxation. Specifically, starting in 2026, the total amount of contributions for a worker's premiums and health spending accounts that exceeded $8,900 a year for individual coverage and $21,600 a year for family coverage would be included in the worker's taxable income—that is, contributions exceeding those limits would be subject to both income and payroll taxes. Those limits would be based on the 50th percentile of employment-based health insurance premiums in 2024, meaning that 50 percent of all premiums for single and family coverage would be below those respective amounts in that year. To set the tax exclusion limits in 2026 and later years, those 2024 premium percentiles would be indexed for inflation using the chained consumer price index for all urban consumers (chained CPI-U), one measure of overall price inflation. The same limits would apply to the deduction for health insurance available to self-employed people.

Limit the Income and Payroll Tax Exclusion to the 75th Percentile of Premiums. Like the first alternative, the second alternative would impose limits on the extent to which contributions could be excluded from income and payroll taxation. Under this alternative, however, the limits would be higher: $11,200 a year for individual coverage in 2026 and $27,600 a year for family coverage. Those limits would be based on the 75th percentile of employment-based health insurance premiums in 2024, meaning that 75 percent of all premiums for single and family coverage would be below those respective amounts in that year. To set the tax exclusion limits in 2026 and later years, those percentiles would be inflated using the chained CPI-U.

Limit Only the Income Tax Exclusion to the 50th Percentile of Premiums. The third alternative would impose a limit on the extent to which contributions could be excluded from income taxation, but the exclusion for payroll taxation would remain unlimited. Starting in 2026, contributions that exceeded $8,900 a year for individual coverage and $21,600 a year for family coverage would be included in employees' taxable income and subject to income taxes. Those are the same limits as the ones described in the first alternative, and they, too, would be indexed for inflation using the chained CPI-U.

Effects on the Budget

In general, each of this option's alternatives would reduce federal deficits by increasing tax revenues. However, each alternative would also affect outlays. The changes in outlays reflect increased spending on Medicaid, the Children's Health Insurance Program (CHIP), and subsidies for health insurance purchased through the marketplaces established by the Affordable Care Act, as well as decreased spending on refundable tax credits.

Limit the Income and Payroll Tax Exclusion to the 50th Percentile of Premiums. The first alternative would decrease cumulative federal deficits by $893 billion between 2026 and 2032, CBO and JCT project. Revenues would rise primarily because many of those who retained employment-based coverage would receive a smaller benefit from the tax exclusion. (For example, in 2032, the capped tax exclusion would reduce the combined federal income and payroll tax liability of policyholders with employment-based coverage by an average of about $5,100; the current-law exclusion reduces that liability by an average of about $7,200.) The benefit from the tax exclusion would be reduced for two main reasons: First, some workers would enroll in lower-premium plans to avoid taxation, resulting in higher taxable wages and profits. Second, some premium contributions would exceed the threshold and be treated as taxable income. To a lesser extent, revenues would also rise because the number of people with employment-based coverage would decline.

Large employers (those who employ 50 or more people) are required by law to provide affordable health insurance to their employees or be subject to certain penalties. Additional penalty payments by large employers who no longer offered health insurance coverage to their employees would also increase revenues, although by only a very small amount. However, additional tax credits for health insurance purchased through the marketplaces would reduce revenues. In all, revenues through 2032 would be $912 billion higher than under current law.

Those increased revenues would be offset, to a small degree, by $18 billion in additional outlays—primarily because of increased subsidies for health insurance purchased through the marketplaces and increased spending on Medicaid and CHIP. By reducing the appeal of employment-based health insurance, this alternative would also cause about 3.5 million fewer people to have such coverage in 2032 than would be the case under current law. Of those people, about 1.1 million would buy health insurance directly through the nongroup market (that is, either in the health insurance marketplaces or from insurers outside of the marketplaces), about 0.6 million would enroll in Medicaid or CHIP, and about 1.8 million would be uninsured.

Limit the Income and Payroll Tax Exclusion to the 75th Percentile of Premiums. The second alternative would decrease cumulative federal deficits by $500 billion by 2032, CBO and JCT estimate. Specifically, the alternative would increase revenues by $514 billion and outlays by $14 billion. Although revenues and outlays would increase for the same reason that they would under the first alternative, the changes would be smaller under this alternative because the tax-exclusion threshold would be higher. Consequently, fewer plans and fewer premium dollars would be subject to taxation. Also, like the first alternative, this one would reduce the appeal of employment-based health insurance, causing about 2.1 million fewer people to have such insurance in 2032 than would have it under current law. Of those people, roughly 600,000 would buy health insurance through the nongroup market, about 400,000 would enroll in Medicaid or CHIP, and about 1.1 million would be uninsured.

Limit Only the Income Tax Exclusion to the 50th Percentile of Premiums. The third alternative would decrease cumulative federal deficits by $651 billion by 2032, CBO and JCT estimate. Revenues would be $657 billion higher, and outlays would be $5 billion higher. The amount of revenues collected would be smaller than under the first alternative because health insurance contributions would still be exempt from payroll taxation. Outlays would offset revenues to a lesser degree than under the first and second alternatives because fewer people who gave up employment-based insurance would enroll in subsidized health insurance. This alternative would cause about 2.6 million fewer people to have employment-based insurance in 2032 than would be the case under current law. Of those people, about 800,000 would buy health insurance through the nongroup market, about 400,000 would enroll in Medicaid or CHIP, and about 1.3 million would be uninsured.

Differences in Revenue Effects Across the Alternatives. The first alternative, which would set a limit for the tax exclusion at the 50th percentile of premiums, would generate substantially more revenue in 2032 than the second alternative, which would set a limit at the 75th percentile. In 2032, for example, the first alternative would raise $181 billion in additional revenues, whereas the second alternative would raise $108 billion in revenues, a difference of $73 billion. Setting the limit at the lower threshold would generate two-thirds more revenue because it would affect a larger share of plans and would generate more revenue for each plan that was affected. Because of those two factors, a simple, linear relationship between the percentile used to set the limit and the amount of revenues collected does not exist. Therefore, the difference in the amount of revenues that would be generated by the first and second alternatives should not be used to approximate the change in revenues from setting the limit at other percentile points.

Differences in Deficit Effects Over Time. The net deficit reduction resulting from each alternative would grow substantially over time. The first alternative would reduce the deficit by $67 billion in 2026, and that amount would grow to $176 billion by 2032. For the second alternative, the deficit reduction would grow from $34 billion in 2026 to $105 billion in 2032. The third alternative would reduce the deficit by $49 billion in the first year of the 2026–2032 period and by $129 billion in the last. The increasing amount of deficit reduction under each alternative would be the result of indexing the exclusion thresholds to the chained CPI-U, which would increase the threshold amounts more slowly than the projected growth of health insurance premiums under current law. Over time, that effect would increase the share of workers with plans subject to taxation and increase the share of premiums above the threshold for those plans.

Analytic Methods. Each alternative was estimated using CBO and JCT's microsimulation models. Those models use a combination of detailed survey and administrative data to construct a nationally representative sample of employers and individuals in order to estimate the distribution of health insurance coverage, premiums, and taxes under both current law and different policy scenarios. The microsimulation models were particularly useful for capturing the effects of this option because they approximate a wide range of behavioral responses that different types of employers and households would make in response to the policy changes. For each alternative, the agencies' models calculated the after-tax price for employment-based insurance (accounting for the reduction in the tax exclusion), computed the cost of insurance coverage choices available to workers on the basis of their household's characteristics, and then estimated firms' decisions to offer health insurance and households' choices to enroll in such insurance. Those models also accounted for the fact that some firms and workers would substitute less expensive coverage—such as that available through high-deductible health insurance plans or health maintenance organizations (HMOs)—to reduce their taxes under the option. Finally, CBO and JCT used that estimated enrollment to calculate the total tax revenues that would be generated by reducing the tax exclusion and the offsetting spending increases on subsidies for other types of coverage.

Uncertainty About the Budgetary Effects

These estimates reflect complex interactions among many entities—including employers, households, and insurers—and are therefore inherently uncertain. One substantial source of uncertainty is whether and how insurers would reduce premiums to minimize or avoid the taxation of employers' and employees' health-related contributions. Insurers could adjust coverage in many ways: They could change the scope of benefits, patients' cost sharing, the breadth of the network, utilization management, administrative expenses, or prices negotiated with health care providers. A 2016 survey conducted by the Kaiser Family Foundation and the Health Research & Educational Trust (Claxton and others, 2016) found that a small share of employers had taken steps to reduce premiums because the Affordable Care Act's excise tax on high-cost, employment-based health coverage was scheduled to take effect in 2020. (That tax was repealed in 2019.) If insurers were better able than anticipated to lower premiums to avoid taxation, the option would probably reduce employment-based coverage by less than CBO and JCT project. However, the option would still reduce the deficit by about the same amount that CBO and JCT estimate. That is because the lower premiums would reduce the additional revenues generated by the taxation of health care contributions but would also result in higher taxable wages and salaries.

An additional source of uncertainty is employers' willingness to continue offering health insurance without the full benefit of the tax exclusion. In general, federal deficits would be reduced by larger amounts if fewer workers enrolled in employment-based health insurance under the alternatives. They would be reduced by smaller amounts if more workers remained enrolled in such insurance. Firms offer health insurance to compete for workers in the labor market. If many employers still felt the need to continue offering coverage despite the higher costs under the option, other employers might be pressured to offer such coverage as well, leading to a smaller than anticipated decline in offers and a smaller than anticipated reduction in deficits. However, if employers perceived that many workers would prefer wages (or other forms of compensation) to more costly health insurance under the option, more firms could choose not to offer such coverage, leading to a larger than anticipated reduction in the deficit. In general, there is greater uncertainty about the effects of larger reductions in the tax exclusion, such as those that would occur under the first alternative, because the empirical literature has primarily addressed small changes to the after-tax price of employment-based insurance.

Another source of uncertainty relates to the share of workers with an offer of employment-based insurance who would enroll in that insurance under the option. Each alternative would increase the amount paid by affected workers for their insurance coverage, including their premium contributions and the taxes they pay on contributions exceeding the limit. CBO and JCT expect that those higher costs would cause some workers who would have enrolled in such insurance under current law to decline that coverage. If more workers than anticipated decided to decline coverage under the option, a larger reduction in the deficit would result because a greater share of total compensation would be subject to taxation. However, if fewer workers than anticipated declined coverage under the option, the deficit reduction would be smaller because, for workers enrolling in employment-based insurance, the premium amount above the threshold would be taxed.

In addition, the estimates are sensitive to growth in premiums for employment-based health insurance. For example, if premiums for such coverage grew faster than in CBO and JCT's baseline projections, fewer people would obtain such coverage, all else being equal. Under the alternatives discussed here, faster growth in premiums relative to the chained CPI-U would increase the revenues collected by the federal government because a larger share of premiums would exceed the alternatives' thresholds and would become taxable compensation. However, fewer workers would have employment-based coverage both under current law and under the option if premiums for employment-based coverage grew at faster rates than CBO and JCT project; therefore, the net effect of the option on the deficit could be larger or smaller than the estimates presented here.

Long-Term Effects

Although these alternatives would preserve much of the benefit of the tax exclusion in the first few years after enactment, the longer-term effects would depend significantly on how quickly premiums for employment-based health insurance grew relative to the index (the chained CPI-U) used to increase the limits under the alternatives. By design, in 2024, when the caps would be set, about half of all plans would not be subject to the limits specified by the first and third alternatives, and three-quarters of plans would not be subject to the limits specified in the second alternative. However, CBO and JCT anticipate that, under current law, private health insurance premiums will continue to grow faster than the chained CPI-U. At those current-law growth rates, the agencies expect, about 29 percent of premiums for employment-based plans would be below the limits imposed by the first and third alternatives by 2032, and 50 percent of premiums would be below the limits specified by the second alternative.

Insurers and employers could take several approaches to keep premiums under the option's limits to avoid taxation. If those approaches were largely successful at slowing the growth of premiums for employment-based coverage, the federal government would collect relatively little revenue on premium contributions that exceeded those limits and more revenue on taxable wages and profits. However, if premiums continued to grow faster than the chained CPI-U under the alternatives, substantially more plans would be subject to the limits under these alternatives, particularly after 2032, and a much larger share of premiums for those plans would be taxed. Those taxes would increase employers' and employees' effective health insurance costs and could lead to a considerable decline in the number of employers that offered health insurance.

Distributional Effects

Limiting the tax exclusion for employment-based health insurance would not have a uniform effect on households across the income distribution. Households without employment-based coverage, which tend to have lower income than those with that coverage, would not be directly affected by this option. All three alternatives would increase the after-tax cost of health insurance for workers whose premiums exceeded the limit, regardless of income level. However, in general, the value of the tax exclusion is greater for workers with higher income, partly because those workers face higher tax rates and because they are more likely to be offered coverage by their employer. In addition, higher-income workers are typically offered more generous plans with higher premiums and are more likely to have accounts such as FSAs and HSAs, further increasing the value of the tax exclusion. As a result, most methods of limiting the tax exclusion would reduce the benefit of the exclusion more for higher-income households than for lower-income households.

The distributional effects would depend on design choices. For example, higher-income households face higher income tax rates but pay lower payroll tax rates because only earnings up to a maximum, which is $147,000 in 2022, are subject to Social Security payroll taxes. As a result, the effects of the third alternative, limiting the exclusion from income taxation only, would fall more heavily on higher-income households than would the effects of the other two alternatives.

Economic Effects

In addition to having the behavioral effects reflected in conventional budget estimates, such as the ones shown above, limiting the tax exclusion for employment-based health insurance would, to a certain degree, alter the incentives for people to work and affect how employers structure their compensation to compete for workers. For people who highly value health insurance, a reduction in the share of total labor compensation that consists of health insurance would more strongly reduce their incentive to work than it would for those who might prefer other forms of compensation, such as wages. As a result, this option would reduce work incentives more for older people or for those with high expected health care utilization than for younger or healthier people.

For employers, the option would marginally limit the incentive for them to compete for workers by offering more generous health insurance, particularly if that additional generosity caused a plan's premium to exceed the limit. That change in incentives would lead firms to use other forms of compensation to compete in the labor market. By increasing the cost of offering health insurance, the option would disproportionately affect firms that have workforces with high health care spending or that operate in areas with above-average health care costs. Without adjustments to the tax-exclusion limits for workforce characteristics that are associated with higher spending, such as age or sex, those limits could discourage employers from hiring workers that were expected to have higher health care costs or to reduce the compensation of those workers. Similarly, to minimize health care costs, larger firms operating in multiple locations would have an increased incentive to limit operations in high-cost areas.

Other Considerations

Reducing tax subsidies for employment-based health insurance would affect many aspects of health care in the United States, including employers' decisions about offering health insurance, the cost of health care, health insurance coverage, adverse selection, and the health of the population.

Effects on Employers' Decisions About Offering Health Insurance. Placing a limit on the tax exclusion would cause fewer employers to offer health care coverage than would be the case under current law. CBO and JCT estimate that the first alternative would cause 600,000 fewer workers to receive an offer of employment-based insurance than the 109 million workers who, under current law, are projected to receive an offer in 2032. That effect would be smaller under the second and third alternatives, though fewer firms would offer insurance under those alternatives as well. The agency expects that fewer employers would offer health insurance coverage under this option because its after-tax cost would increase, and research has shown that—accounting for the tax exclusion—the price of coverage influences the decisions that firms make about offering health insurance.

Effects on Health Care Costs. Placing a limit on the tax exclusion would make total health care spending lower than it would be under current law. The alternatives examined here would increase taxes for a large share of employment-based plans, particularly those providing more generous benefits or covering more expensive workforces. Those higher taxes would give employers an increased incentive to offer lower-premium plans that exclude high-cost providers, cover fewer services, and require enrollees to pay a larger share of the costs out of pocket than under current law. In addition, that increase in tax liability might lead employers to exert additional pressure on insurers and health care providers to reduce prices or decrease unnecessary care. Those strategies would potentially reduce the income of health care providers, which could reduce the supply of care.

Effects on Health Insurance Coverage. The tax increases that would result from these alternatives would affect health insurance coverage through two main mechanisms. First, fewer employers would offer health insurance to their employees. Although most people whose employers stopped offering health insurance would instead buy coverage in the nongroup market or enroll in Medicaid or CHIP, CBO and JCT anticipate that some workers would forgo coverage. Second, for many workers at firms that continued to offer coverage, the cost of that coverage would increase, because part of their premium contribution would be taxed. In addition, the benefits of that coverage would decrease, because employers would offer plans with higher cost sharing, fewer covered services, or narrower networks. That increase in costs coupled with a decrease in benefits would reduce the share of workers with an offer of employment-based coverage who take up that coverage. CBO and JCT estimate that the take-up rate would decrease from 83 percent under current law to 81 percent under the first alternative in 2032. (That change would be smaller for the second and third alternatives.) As with those workers who would no longer receive an offer of employment-based coverage under this option, some who chose not to take up coverage from their employer would enroll in other forms of health insurance and some would forgo such coverage.

Effects on Adverse Selection. In general, people who anticipate needing health care services are more likely to buy health insurance than otherwise similar people who do not need such services—a phenomenon often referred to as adverse selection. CBO and JCT expect that this option would, to a limited extent, increase the extent of adverse selection in employment-based insurance relative to current law. Specifically, healthier workers would be more likely than less healthy workers to forgo that coverage because of the higher costs and lower benefits under the option. The effects of that increase would probably be small over the 2026–2032 period because most workers would continue to enroll in employment-based health insurance if it was offered. However, in the longer term, as the value of the tax exclusion was more substantially reduced under this option, further reductions in enrollment by healthier workers might lead to more substantial increases in premiums and larger decreases in enrollment.

Effects on People's Health. By increasing the number of people without health insurance, all three of the alternatives analyzed here would reduce the amount of care received and worsen some people's health. Furthermore, depending on the strategies that employers and insurers chose to reduce premiums for employment-based health insurance, the alternatives could also worsen the health of those who continued to have that coverage. People with more generous insurance tend to use more health care services than those with less generous plans—a phenomenon often called moral hazard. Under the alternatives, enrollees in employment-based coverage would, on average, pay a larger share of their health care costs out of pocket. Those higher out-of-pocket costs would lead to a reduction in the total amount of health care services used by those enrollees. Evidence from the RAND Health Insurance Experiment suggests that increasing out-of-pocket costs for enrollees to curb premiums could worsen people's health by reducing the use of both effective and ineffective care (Brook and others, 2006). However, the experiment showed that more tightly managing care through the increased use of HMO plans is less likely to have negative health effects.