The employer-insurance tax break and the 2025 subsidy expiration trap 23 million workers in unwanted jobs.
The tax exclusion for employer-sponsored health insurance is the single largest tax expenditure in the federal budget — roughly $300 billion annually, according to the Tax Policy Center’s analysis of JCT estimates. It is a subsidy that runs through the tax code, not through an appropriations bill, which is why it receives less scrutiny than a $300 billion direct spending program would. Its effect is to tie health coverage to a specific employer, creating a labor-market lock that the West Health-Gallup survey now measures at 24% of workers with employer coverage — up from 16% in 2021, before the enhanced ACA subsidies expired.
The 2025 expiration of those subsidies raised premiums for people buying their own coverage on the ACA marketplaces. MSI documented the consequences last month: ACA enrollment dropped by 5 million as premiums spiked. The combination — a $300 billion tax break that rewards employer-based coverage and a withdrawn subsidy for the non-employer alternative — creates a one-way ratchet: workers who lose or leave a job lose their insurance or pay substantially more for it.
The operation is worth naming. The employer-insurance exclusion is routinely described as “private market” health coverage, as though it were a voluntary arrangement between consenting adults. It is not. It is a $300 billion annual tax expenditure — the single largest tax expenditure in the federal code — that Congress writes into the tax code each year, and whose primary effect is to suppress labor mobility. The 2025 subsidy expiration was sold as fiscal discipline. It increased the cost of exiting a job. The 23 million workers now reporting job lock are the ledger entry of that decision.
Michael Cannon of the Cato Institute, quoted in the survey coverage, agrees that job lock is real and proposes expanding health savings accounts. HSAs are a tax preference of their own — a tax expenditure that disproportionately benefits higher-income workers who can afford to fund them. The HSAs-for-everyone framing is a wonk-laundering operation: it relabels a tax shelter for the healthy and wealthy as consumer empowerment.
The Gallup survey also found that only 28% of workers think it is a good time to find a job — the lowest reading since 2013. The labor market is soft, and the insurance trap compounds it. Workers with three or more chronic conditions reported a 41% job-lock rate. The people who can least afford to be stuck are the most stuck. KFF polling earlier this year found that nearly two-thirds of adults are worried about affording healthcare, tied for top concern with gas and transportation. The lock reaches deepest among the sickest and the most cost-burdened.
The remedy is not a mystery. The tax exclusion for employer-sponsored insurance could be capped at a reasonable threshold, and the revenue — hundreds of billions per year — could fund premium subsidies that follow workers, not jobs. The JCT has scored such proposals before. The CBO has modeled them. The arithmetic is straightforward. What is missing is the political will to disturb a $300 billion tax expenditure that benefits the insurance industry, large employers, and the payroll-processing infrastructure that handles the deductions.
The Tax Policy Center’s estimate of $299 billion in 2022 places the exclusion as the single largest tax expenditure. Every year it is not capped, 23 million workers stay in jobs they want to leave. That is a deliberate policy choice.