Replaces Complex Rules : House Panel to Simplify Rules on Insurance Plans

The House Ways and Means Committee Wednesday approved most features of a tax bill that would raise an extra $5.3 billion to help reduce next year’s budget deficit and agreed to simplify rules governing company health insurance plans.

Before endorsing the measure on a voice vote, the panel rejected a proposal that included a tax cut on capital gains. The vote was 22 to 11, but aides said a reduction in the tax on profits from investments is likely to be closely fought again before the committee takes final action on the bill.

The committee’s agreement on a simplified formula for company health insurance plans comes close to putting to rest one of the most controversial issues arising from the 1986 tax reform law.

Most of the revenue-raising provisions in the tax package, drafted by Rep. Dan Rostenkowski (D-Ill.), the committee chairman, are minor changes affecting corporations. Others would raise taxes on users of pipe and chewing tobacco, would raise the ceiling on income subject to Social Security taxes and would cancel a scheduled reduction in the 8% airline ticket tax.

Tobacco Amendment Expected

The committee voted against a proposal to extend the current 3% telephone tax beyond 1990. However, Congress is expected to keep the tax intact when it takes up future deficit-reduction bills.

Before the package is completed, committee aides said, the panel will probably vote on an amendment to eliminate the tobacco tax increase.

Also, lawmakers are expected to offer a number of amendments of their own, including one that would repeal the new tax that retirees are scheduled to pay for expanding Medicare coverage to protect against catastrophic medical expenses.

In addition, an effort will be made to retain at least some part of a tax benefit for employee stock ownership plans--a benefit that Rostenkowski has proposed repealing.

The House panel’s move to simplify the controversial rules on company health insurance programs is similar to a Senate-approved bill. It appears likely to thwart an effort by small-business groups to win repeal of a controversial provision of the bill called Section 89, which was designed to prevent companies from abusing their tax-free health insurance programs.

A New Approach

In place of the complex rules that would have required companies to determine exactly what health insurance coverage their employees were receiving, the new approach calls for them only to make sure that they offer an affordable plan to nearly all their workers.

Under the plan adopted by the tax-writing committee, employers who choose to offer health insurance to their workers are required to pay at least half the total cost of the coverage. In addition, employees earning less than $20,000 cannot be required to pay more than $1,000 a year for their own health insurance premiums or $2,000 for family coverage.

The Senate bill would require companies to pay somewhat more of the total cost of insurance coverage. However, it does not contain the cap on insurance payments by lower-paid employees. The cap is likely to be included in the final version approved by Congress, congressional aides said.

Small businesses with fewer than 20 employees would be allowed to obey less restrictive rules for company-sponsored health insurance plans. But on a largely party-line vote, the committee rejected a proposal by Rep. Richard T. Schulze (R-Pa.) to allow firms with up to 50 employees to escape the normal guidelines.

Reeling under a ferocious lobbying effort that at one point claimed the support of a majority of House members in favor of repealing Section 89, congressional tax writers spent several months struggling to forge a compromise that would keep at least part of the law in place.

Discrimination Targeted

Section 89 once was scheduled to go into effect at the beginning of this year, but the Internal Revenue Service postponed its effective date for six months. Treasury Secretary Nicholas F. Brady won a standing ovation in May when he told a meeting of the U.S. Chamber of Commerce that the Administration would put the rules off three more months to work with Congress on revising the legislation.

The original intention of the law was to prevent all employers, including nonprofit firms, from discriminating in favor of their top employees by offering them substantially better health insurance benefits than those available to rank-and-file workers. Lawmakers wanted to make sure that highly paid employees did not receive an unduly large share of the $30-billion-plus annual federal tax subsidy for employer-paid health insurance.

The law was also supposed to encourage companies to expand health insurance to more of the estimated 30 million Americans who are not covered. But that goal backfired when thousands of business owners deluged Congress with bitter complaints about the complexity of the provisions.

Under both the House and Senate versions, implementation of the new Section 89 rules would be delayed until Jan. 1.