AMII made the call ahead of this week's budget, saying it could alleviate cost pressures on the National Health Service.
The previous Labour administration introduced the Employers National Insurance charge on employer-paid private medical insurance. This charge is due to increase to 13.8% from April and comes on top of a 1% increase in Insurance Premium Tax to 6% effective from January 2011.
Employees are taxed on this benefit, as a P11D benefit-in-kind, at their marginal rate of tax.
AMII noted these tax charges are not applied to other group risk health insurance benefits - such as group protection or employee health screening.
Andrew Tripp, chairman of AMII, said: "The current tax treatment of employer funded PMI is not only inconsistent with how other forms of group risk insurance are treated, but is also a perfect example of taxation working against the intentions of other Government initiatives,"
"Removing the current tax disincentive for employers who wish to fund private healthcare for their employees, would not only have a positive effect on the public finances, by relieving pressure on over-stretched NHS budgets, but prompt access to treatment will also result in lower welfare costs for the Government."