Of the many peculiar incentives that would be generated by the House Republicans’ proposed ACA replacement, one that hasn’t drawn much attention yet is the incentive for firms with low- and middle-income workers to drop their employer-sponsored health insurance plans. The incentive arises from the fact the premium credit proposed by House Republicans would be available only to taxpayers who aren’t eligible for insurance through their employer. In many cases the premium credit would be more valuable than the exclusion of employer contributions to employee health plans under existing federal income and payroll tax laws. In those circumstances, employees would be better off if their employer dropped coverage so that they could claim the more generous credit.

Consider a hypothetical family of four with adjusted gross income of $80,000 and health insurance premiums of $20,000 per year. (The average annual premium for employer-sponsored family health coverage was $18,142 in 2016, according to the Kaiser Family Foundation; I’m using a round number to make the arithmetic easy.) With the standard deduction plus four personal exemptions, this family falls safely into the 15% income tax bracket(and would still even without the exclusion of employer-sponsored health insurance).

If an employer pays the $20,000 premium, the value of the income tax exclusion is $3,000. If we add in Social Security and Medicare taxes (ignoring any future benefits that family members will receive as a result of the Social Security benefits formula), then that’s an additional 15.3%, or $3,060. All in, the value of the federal income and payroll tax exclusions is $6,060.

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