Trade Group Backs Taxing Workers for Health Benefits : Insurance: The plan is seen as a way to encourage firms and employees to seek less expensive care. Clinton reportedly backs the proposal.
In a dramatic policy shift, a trade group representing many major employers is backing a plan that would require workers to pay income taxes on health care benefits that exceed the cost of basic coverage.
The Assn. of Private Pension and Welfare Plans, a trade group whose board members include Eastman Kodak, Sun Oil, AT&T;, U.S. West, Southwestern Bell, American Express, Exxon, Mobil and other major employers, has adopted a new stance that “reverses 25 years of policy in many ways,” Ellen Goldstein, the group’s director of health policy, said Friday.
She said the group believes the taxation of benefits will encourage employers and workers to seek less expensive ways to get care, while a federal mandate for all firms to provide coverage will solve the problems of millions of uninsured workers and their families.
The association endorsement comes amid increasing indications that such a proposal could well be a key element in the Clinton Administration’s health care reform initiative.
But any effort to tax benefits is certain to draw strong and determined opposition from trade union members and many other Americans covered by health plans with extensive benefits.
“People will see this as a tax increase on the middle class,” Karen Ignagni, health policy director for the AFL-CIO, said Friday. “People have foregone wages to maintain health care benefits during the 1980s, and now they are being told they are to blame for high health care costs, and the government will make them pay more taxes.
“People won’t see this as fair, no matter what business associations or insurance companies or governors or others promote it,” she said.
President-elect Bill Clinton backed the tax proposal in a Friday Wall Street Journal interview in which he said: “There has to be some personal responsibility in this health care system we set up. You don’t want to punish necessary access. I don’t mean that. But once you guarantee a threshold of access, there ought to be some limit to utilization I think.”
Companies now deduct from their taxes as business expenses the cost of health insurance for their employees. The money they spend for coverage does not count as salary for workers.
Clinton’s health advisers want to limit companies’ spending for health care by directing workers into group health plans, such as health maintenance organizations, which deliver care for a fixed monthly fee and restrict access to a selected group of doctors.
That can be done by imposing new tax burdens that discourage companies and their workers from having benefits packages that are too costly and inefficient. The increased tax liability can be accomplished by limiting health care deductions that companies may take or by making workers pay more taxes.
“It’s a flat-out take-away,” said Rob McGarrah, director of public policy at the American Federation of State, County and Municipal Employees. “This is something we definitely oppose, and we are working and communicating our views at every level of the transition.”
Businesses that provide health insurance spend an average of $3,500 a year for each worker.
Under plans being considered by Clinton’s health advisers, a limit would be placed on the amount of tax-free benefits a worker may receive. That ceiling could be linked, in one option, to the least expensive health care plan with an adequate benefit package in a particular geographic area.
For example, a health maintenance organization (HMO) might provide coverage in Los Angeles for an average cost of $2,000 a year. The value of any benefits above $2,000 would be considered taxable income, just as if the worker had received a raise.
“This is not real dollar income, but workers would still have to pay taxes,” said Ignagni.
If all health benefits were considered taxable income for employees, American workers would pay an estimated additional $40 billion in federal income taxes. The amount of additional taxes under a Clinton plan would depend on the size of a standard benefit package. Clinton’s health care advisers believe the economic threat of higher taxes would force both companies and workers to search for lower-cost health delivery systems, such as HMOs.
But “this could mean major restrictions on choice and quality for middle-class consumers,” insists Ignagni, the AFL-CIO’s health policy director.
The employer trade association believes that the taxation of benefits, combined with a new law forcing all employers to provide health insurance, is the only way to control spending while assuring that all Americans have access to good health care.
The group’s directors held a special meeting Tuesday, making the “historic decision” to support “comprehensive reform of the nation’s health care system,” James A. Klein, the executive director, said in a letter to members Thursday.
After an intense 15 months of internal discussion and debate, the organization abandoned its long-held opposition to mandatory coverage and to the taxation of benefits.
Individual member companies may disagree with the policies, but the organization is now on record in favor of drastic changes in the health care system. “Not every board member could support each element of the proposal,” Klein noted in his letter.
From a business viewpoint, the controversial and “more difficult elements” are a mandate for all companies to provide coverage for their workers, a new tax on the value of benefits to workers and the establishment of overall federal and state spending targets, Klein noted.
“There is something here for everybody to hate, but that’s what health reform is all about,” said Goldstein. “We have always opposed government intrusion and regulation in the marketplace of benefits. But the crisis is here. Rising health care costs will take both corporate and federal budgets as hostages.”
