The Once and Future Cadillac Tax | Bill of Health

The National War Labor Board was still cautious of this benefit becoming unreasonable and put a limit on the amount of health insurance that could be tax-free in their 1943 decision. The Board ruled that tax-free health insurance expenditures must be less than five percent of annual salary.

This limit on the amount of money that an employer can spend on health insurance was not present in the 1954 law that cemented the tax treatment of health insurance. As noted earlier, the share of health insurance as a percent of income was much less than five percent. The policy makers of the time did not have a reason to believe that medical costs would rise to what they are today. Except they should have. The federal investment in medical technology has been had been growing at 10 times the rate of wage growth for the previous two decades.

Source: The Once and Future Cadillac Tax | Bill of Health

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