Public and private health care spending is growing due to increased enrollment in health insurance, demographic changes of an aging society, and the expansion of government programs, among other reasons. While much attention is being paid to the budgetary cost of outlays from the largest federally funded health programs (Medicare and Medicaid), the implicit subsidies in the Internal Revenue Code for the provision of private and publicly provided health care are sometimes overlooked in public debates. These subsidies come in the form of tax expenditures , or provisions that confer preferential tax status to certain forms of income, and result in revenue foregone. Congressional attention to health-related tax expenditures could be related to a number of questions, such as the following: What is the value of health-related tax expenditures? How has it changed over time? Has the value of these tax expenditures increased since enactment of the Patient Protection and Affordable Care Act (ACA; P.L. 111-148 , as amended)? How has the value of health-related tax expenditures changed relative to the value of total revenue collected? What was the size of health tax expenditures relative to discretionary and mandatory outlays on health programs in past years? Likewise, has federal support for health grown more in the form of direct outlays or indirectly through revenue losses attributable to tax expenditures? To provide some insights into these questions, this report analyzes historical data on health-related tax expenditure estimates published by the Joint Committee on Taxation (JCT). This report analyzes these tax expenditures together at the budget function level, rather than focusing on the size of any single provision. For more information on individual tax expenditures, see CRS Committee Print CP10001, Tax Expenditures: Compendium of Background Material on Individual Provisions — A Committee Print Prepared for the Senate Committee on the Budget , by [author name scrubbed] et al. For broader analysis of tax expenditures and comparisons of different categories of tax expenditures, by budget function, see CRS Report R44012, Tax Expenditures: Overview and Analysis , by [author name scrubbed]. This report relies on the tax expenditure definition and estimation methodology used by the Joint Committee on Taxation (JCT). To define tax expenditures, JCT refers to the Congressional Budget and Impoundment Control Act of 1974 ( P.L. 93-344 ; Budget Act), which defines tax expenditures as revenue losses attributable to provisions of the Federal tax laws which allow a special exclusion, exemption, or deduction from gross income or which provide a special credit, a preferential rate of tax, or a deferral of tax liability…. JCT uses a modified Haig-Simons baseline definition of income (consumption plus changes in net wealth in a given period). Provisions considered "tax expenditures" cause a divergence from measured income under this baseline definition, and are considered as revenue forgone from this baseline. Certain tax provisions might also incur revenue losses under other forms of taxation (e.g., an exclusion might reduce income and payroll tax collection), but only the revenue forgone from the income tax system are included in JCT's tax expenditure estimates. JCT generally publishes estimates of tax expenditures during each session of Congress. There are a number of ways tax expenditures can be categorized. JCT categorizes provisions by budget function, such as health, commerce and housing, energy, etc. Budget functions serve as one way to identify provisions that operate in a common area of policy or share a similar purpose. The Department of the Treasury also has its own list of tax expenditures, by budget function, and a baseline that it estimates annually for the President's budget. The health budget function that JCT uses to organize tax expenditures are arguably broader than the "health" budget functions used for outlays by agencies such as the Office of Management and Budget (OMB). This is partly due to a difference in historical practices within JCT and OMB. It is also due to the difficulty in trying to contain cross-cutting health provisions within a narrow category intended to simplify the understanding of tax expenditures or spending amounts. For example, some health tax expenditures for medical benefits for active-duty military dependents might be related to spending programs in OMB's national defense budget function. In addition to categorizing tax expenditures by budget area, the Congressional Budget Office (CBO) typically analyzes tax expenditures by the forms outlined in the 1974 Budget Act: exclusions, exemptions, deductions, preferential tax rates, and tax credits. Academic researchers also have other ways of categorizing tax expenditures, such as provisions that effectively substitute for social policy or economic spending programs. Economists typically evaluate tax expenditures based on the standard criteria of economic efficiency, equity, and administrative simplicity. These standard criteria can add value to Congressional decision-making by identifying ways that policies could increase or decrease economic distortions, and potential impacts on certain groups of people. Using health insurance as an example, some tax expenditures could correct some inefficiencies in the health care market while increasing others. Regarding equity, tax expenditures in the form of exclusions and deductions could undermine tax progressivity, where the tax benefits of the provisions are based on the top marginal income tax rate faced by the filer. With respect to administrative considerations, the tax code could have an advantage in administering social policy targeted towards lower-income households because information about income and family size is reported directly on tax forms. Administering social programs through the tax code could, however, increase tax filing complexity and increase tax administration costs. Depending on the provision, administering the tax expenditure as a direct spending or grant program could be comparatively easier for beneficiaries and could reduce administrative costs. JCT currently identifies 14 health tax expenditures as summarized in Table 1 . JCT previously identified three tax expenditures related to Medicare, but as of December 2015, JCT no longer includes these Medicare-related provisions in its tax expenditure estimates. References to "health-related" tax provisions in this report include both health and Medicare tax expenditures before FY2015. In FY2016, health tax expenditures are estimated to amount to $234.0 billion. A short summary of each provision, including information about each provision's legislative origins, is provided in more detail in the Appendix . The largest tax expenditure in Table 1 is the tax exclusion for employer-sponsored insurance (ESI). This provision is also the largest tax expenditure in the federal tax code. From FY2015 to FY2019, JCT estimates that the annual tax expenditure amount for the ESI tax exclusion will increase from $145.5 billion to $169.4 billion. The second largest health tax expenditure value is for subsidies for insurance purchased in the exchanges (the advance premium tax credits, or APTCs, not the cost-sharing subsidies). From FY2015 to FY2019, JCT estimates that the annual tax expenditure amount for APTCs will increase from $29.6 billion to $84.8 billion. Health-related tax expenditures serve various purposes and many have a long history in the tax code. Some of these tax provisions effectively subsidize the cost of private health insurance or supplemental benefits provided by government health programs. Other provisions reduce the cost of private activities that are intended to have positive spillover benefits to society (e.g., exclusion of interest on state and local government private activity bonds for nonprofit hospitals; itemized deduction for charitable giving to qualified nonprofit health organizations). While some provisions are noted for particular policy effects and size today, it is important to note that some of these older, health tax provisions in the code have their origins in legal doctrine or thought about definitions of income at the time of adoption, and could have been indirectly affected by other policies. Some of these provisions (e.g., itemized deduction for charitable giving to nonprofit health organizations) are subcomponents of the tax treatment of larger categories of activity (e.g., itemized deduction for charitable giving). Given that earliest forms of the income tax had larger exemptions, it might also have been difficult to imagine the breadth of these older tax provisions during their time of enactment. For example, the origins of the ESI tax exclusion can be traced back to 1918. Employer payments for individual health coverage were deductible as a cost of doing business. Regulatory rulings had conflicting outcomes on the tax treatment of various forms of employer health contributions under a comprehensive revision of the Internal Revenue Code enacted in 1954. The role of the ESI exclusion was significantly expanded during and after World War II by administrative decisions and policies that froze wages, but not employer-sponsored fringe benefits during wartime. The Internal Revenue Code Act of 1954 (P.L. 83-591) explicitly excluded these contributions from income. This section analyzes JCT data on health-related tax expenditure estimates from FY1974 to FY2019 (with the most recent estimates covering the five-year period beginning in FY2015 and ending with projections for FY2019). The number of provisions within the health category of tax expenditures has changed over time, as provisions have expired or been added. The three Medicare-related tax provisions that JCT previously identified as tax expenditures are analyzed separately in the figures through FY2014 (since JCT stopped classifying these provisions as tax expenditures as of FY2015). For the purposes of this report, multiple tax expenditure provisions are added together to give a sense of changes over time to tax expenditures in this budget function. JCT does not typically add multiple tax expenditure values together, as interactions between multiple provisions could mean that the value of tax expenditures estimated as a group is not the same as the value of the sum of individual tax expenditure estimates. Provisions that JCT identifies as having a de minimus tax expenditure value are not included in the calculations in this report. As shown in Figure 1 , after adjusting for inflation, health-related tax expenditures have increased in value over time (as represented, in 2014 constant dollars, by the dotted line in Figure 1 ). From FY2004 to FY2014, health-related tax expenditures increased by 43.0% in real terms, compared with an increase of 110.5% from FY1994 to FY2004 and 83.2% from FY1984 to FY1994. From FY1974 to FY2014, the annual tax expenditure value for health-related provisions has increased by 11.5% (nominal dollars) and 7.5% (real dollars), on average. In the years after enactment of the ACA in 2010, annual growth rates in health-related tax expenditures are all positive, but they fluctuate both above and below these historical averages. In current, or nominal, dollars, the annual value of health tax expenditures are estimated to increase from $210.4 billion in FY2015 to $296.2 billion in FY2019. In FY2016, health tax expenditures are estimated to total $234.0 billion. The net growth of health-related tax expenditures can be attributed to several factors, such as changes in demographics (e.g., an aging population with more health care costs), changes in private and government-provided health costs (i.e., health care costs tend to grow at a rate faster than inflation), and policy changes that affect the cost of health-related tax expenditures (e.g., enactment of new tax expenditures, changes in marginal income tax rates). Before FY2015, JCT identified Medicare-related tax expenditures as the value of benefits in excess of insurance payments, not the total value of Medicare benefits received. All Medicare benefits are excluded from income tax, but JCT measured a positive tax expenditure only if the Medicare insurance benefits for a particular program (Part A, B, or D) were greater than what enrollees paid. For a contextual example, a positive tax expenditure for Medicare Part D (prescription drugs) indicated that the value of the insurance was greater than the premiums paid for coverage. Medicare-related tax expenditures increased in both nominal and inflation-adjusted value over time. JCT estimated that tax expenditures for Medicare were virtually de minimus before FY1987, which would indicate that Medicare insurance benefits were roughly equal to payments. From FY1987 to FY2014, the annual tax expenditure value for the Medicare-related provisions increased by 10.2% (nominal) and 7.7% (real), on average. Given JCT's past tax expenditure estimation methodology, these trends indicate that the annual value of Medicare insurance to beneficiaries increased at rates higher than payments over this period. According to JCT's last estimate of Medicare-related tax expenditures in FY2014, these Medicare provisions were estimated to be 26.8% relative to the total value of health tax expenditures over five years. Health-related tax expenditures have also increased from a value relative to 1.9% of total revenue collected in FY1974 to 8.4% in FY2014, as shown in Figure 2 . In other words, the value of health-related tax expenditures has generally increased at a rate greater than the growth of total revenue collections. Health tax expenditures are estimated to increase from a value relative to 6.4% of total revenue collected in FY2015 to 7.7% in FY2019. In FY2016, health tax expenditures are estimated to be valued at 6.6% of total revenue collected. Tax expenditure values alone do not provide a complete picture of tax policies in health fields relative to total revenue. Several taxes imposed by the ACA raise revenue, such as the excise tax on high-cost employer-sponsored health coverage (also known as the "Cadillac tax"); the individual mandate; the employer mandate; and the medical device tax. Additionally, the ACA imposed a 3.8% unearned income Medicare contribution tax on for higher-income taxpayers. The annual revenue raised by these provisions is small compared to total value of health tax expenditures. Figure 3 displays discretionary and mandatory outlays, as organized under OMB's health budget function, and health-related tax expenditures as a share of gross domestic product (GDP) from FY1974 to FY2014. As mentioned in the " Brief Overview of Health-Related Tax Expenditures " section of this report, OMB classifies a more narrow set of activities under its health budget function than the categories that JCT uses to organize tax expenditures. Additionally, the base used to measure changes in expenditures is different from tax expenditures (e.g., increases in the level of total benefits issued under Medicare would have increased health outlays, but an increase in total Medicare benefits would only have increased Medicare-related tax expenditures to the extent that enrollee benefits exceed contributions). Still, this comparison between outlays and tax expenditures could be useful as one way to track federal support, direct or indirect, to the health sector or to assist with household health expenses over time. The costs of the largest federal health programs, Medicare and the federal portion of Medicaid costs, are nearly all mandatory outlays. Administrative costs, which account for a small portion of those costs, are nearly all funded as discretionary spending. Federal health research (primarily through the National Institutes of Health) and veterans' health care is mostly funded through discretionary spending, as are certain public health clinics. As shown in Figure 3 , the values of health-related tax expenditures historically exceeded health discretionary outlays, but were still much less than health mandatory outlays (which primarily consist of funding for Medicare, Medicaid, and the Children's Health Insurance Program). Specifically, as a percent of GDP: Mandatory outlays for health increased from 1.0% of GDP in FY1974, to 2.0% FY1984, to 3.2% in FY1994, to 3.8% in FY2004, to 5.0% of GDP in FY2014. Health-related tax expenditures have also grown, but from a smaller base, from 0.3% of GDP in FY1974, to 0.6% in FY1984, to 0.8% in FY1994, to 1.2% in FY2004, to 1.5% in FY2014. Health discretionary outlays varied between 0.3% and 0.5% of GDP over the FY1974 to FY2014 period. This appendix contains a brief description and legislative origins of each health tax expenditure provision, as identified by the Joint Committee on Taxation (JCT). As mentioned in the report, JCT stopped classifying Medicare-related tax expenditure provisions beginning with FY2015. In some instances, health tax expenditures are among the longest-standing provisions in the Internal Revenue Code. Although some provisions might have certain policy effects today (such as encouraging employer-sponsored health insurance), the historical rationale for first creating these provisions could have been different. For example, some of these provisions could have had their origins in past legal definitions of taxable events or income, or were the result of administrative rulings to comply with previously enacted laws or policy traditions. For more historical background on individual provisions, see their respective entries in CRS Committee Print CP10001, Tax Expenditures: Compendium of Background Material on Individual Provisions — A Committee Print Prepared for the Senate Committee on the Budget , by [author name scrubbed] et al. 

Summary: Public and private health care spending is growing due to increased enrollment in health insurance, demographic changes of an aging society, and the expansion of government programs, among other reasons. While much attention is being paid to the budgetary cost of outlays from the largest federally funded health programs (Medicare, Medicaid, and the Children's Health Insurance Program), the implicit subsidies in the Internal Revenue Code for the provision of private- and publicly-provided health insurance are sometimes less prominent in public debates. These subsidies are tax expenditures, or provisions that confer preferential tax status to certain forms of income, and result in revenue foregone. This report primarily analyzes health-related tax expenditures, or tax expenditures associated with health and Medicare. As of FY2015, JCT identified 14 health tax expenditures. From FY1974 to FY2014, JCT had been identifying three Medicare-related tax expenditures based on the tax-excluded value of benefits in excess of insurance payments (not the total value of benefits). The single largest tax expenditure is the tax exclusion for employer-sponsored insurance and health coverage (ESI). From FY2015 to FY2019, JCT estimates that the annual tax expenditure amount for the ESI tax exclusion will increase from $145.5 billion to $169.4 billion. The second largest health tax expenditure is for subsidies for insurance purchased in the exchanges (i.e., the advance premium tax credits, or APTCs). From FY2015 to FY2019, JCT estimates that the annual tax expenditure amount for APTCs will increase from $29.6 billion to $84.8 billion. Congressional interest in health-related tax expenditures could be related to the value of health-related tax expenditures over time, their value relative to total revenue collected, and how they compare to the value of discretionary and mandatory outlays for health. Health-related tax expenditures have increased in value over time, after adjusting for inflation in constant 2014 dollars. From FY1974 to FY2014, real health-related tax expenditures have increased, on average, at an annual rate of 7.5%. Looking forward, the nominal value of health tax expenditures is estimated to increase from $210.4 billion in FY2015 to $296.2 billion in FY2019. Health-related tax expenditures have also increased in value relative to total revenue collected, from 1.9% in FY1974 to 8.4% in FY2014. In other words, health-related tax expenditures have generally increased at a rate greater than the growth of total revenue collections. Over this FY1974 to FY2014 period, the value of health-related tax expenditures as a percent of GDP exceeded health discretionary outlays, but were still much less than health mandatory outlays according to analyses of Office and Management and Budget (OMB) data on health and Medicare spending. This report analyzes these provisions at the level of a budget function, rather than focusing any single provision. For more information on individual health tax expenditures, see CRS Committee Print CP10001, Tax Expenditures: Compendium of Background Material on Individual Provisions—A Committee Print Prepared for the Senate Committee on the Budget, by [author name scrubbed] et al. For broader analysis of tax expenditures and comparisons of different categories of tax expenditures, by budget function, see CRS Report R44012, Tax Expenditures: Overview and Analysis, by [author name scrubbed].