The One Big Beautiful Bill Will Lower Employer-Sponsored Health Insurance Costs

The One Big Beautiful Bill Will Lower Employer-Sponsored Health Insurance Costs

Washington, D.C. - A new report from the Department of Health and Human Services (HHS) shows the One Big Beautiful Bill's reforms to states' provider taxes will lower health insurance premiums for Americans who are covered by their employers, saving workers and their families money.

WORD ON THE STREET

The average state provider tax law, which typically taxed a hospital up to 3.5 percent of net patient revenue, resulted in an increase in [employer-sponsored health insurance] ESI premiums of 1.5-1.7 percent, plus any spillover effect on interstate markets for provider resources.

By 2026, most states had increased the hospital provider tax rates, with 33 of 47 states imposing a tax that exceeds 3.5 percent of net patient revenue.

These findings suggest that the 2025 Working Families Tax Cut (WFTC) legislation may reduce ESI premiums by up to 2.2-2.5 percent by 2032 by lowering the provider tax safe-harbor threshold from 6 percent to 3.5 percent.

Extrapolating from the literature this is a 0.5-0.6 percent increase in wages, or about $640-$730 in increased wages per year for the average household with ESI, in addition to their premium savings.

THE BOTTOM LINE

States impose provider taxes on hospitals and other health care providers to help pay their share of Medicaid costs. This allows states to collect additional federal matching funds without relying as heavily on their own general tax revenue. In practice, states can tax hospitals for 85 percent of fees, use the revenue to finance Medicaid payments, and then draw down additional federal funding.

Critics, including Paragon Health Institute, have called this practice "legalized money laundering," arguing it allows states to shift more of the burden onto federal taxpayers, increasing federal Medicaid spending by an additional 14 percent. The One Big Beautiful Bill (OBBB) cracked down on states' ability to leverage this money laundering scheme. OBBB required states to lower their provider tax rates from a maximum of 6 percent to no more than 3.5 percent by FY 2032. Before OBBB was signed into law, 33 of the 47 states using this mechanism had provider tax rates above 3.5 percent.

OBBB is projected to save American taxpayers more than $360 billion by reining in states' ability to use this Medicaid money laundering scheme.

These reforms will also benefit Americans who get health insurance through their employers. The report estimates addressing these loopholes will lower employer-sponsored health insurance premiums up to 2.2-2.5 percent by 2032-increasing an average family's take-home pay nearly $750.