Health Plan Will Exclude Benefits Tax, Sources Say

The White House health care task force has abandoned a politically sensitive proposal to tax health benefits that workers receive from employers, previously a key element of an emerging tax package to help finance national health care reform, sources said Wednesday.

The reason, the sources said, is the opposition of First Lady Hillary Rodham Clinton, who chairs the presidential Task Force on National Health Care Reform. The proposal, which analysts said also would have made consumers more cost-conscious, was drawing growing opposition from a coalition of labor, business and insurance industry representatives.

“She did not think it’s wise to have it in the plan,” said one source who met this week with Mrs. Clinton.

Another source--a leading private health care official--recalled the First Lady telling a key adviser in a recent meeting: “There’s something more important than having prudent purchasers, and that’s called getting reelected in four years.”

By not seeking such a tax, which might have raised $20 billion or more annually, the Clinton Administration greatly improves the chances that its overall reform agenda will receive support from middle-income Americans, who would have been hit hard by a benefits tax.

Now, such benefits do not count as taxable personal income and businesses can write off that expense, which typically costs several thousand dollars a year per employee.

The task force also is considering subsidies for long-term care and prescription drugs for the elderly as a way to bring another powerful group on board, sources said.

To raise some of the revenues to pay for such services, which would include phased-in medical coverage for the estimated 37 million uninsured Americans, the task force intends to seek tax hikes on alcohol, tobacco, guns and ammunition, in addition to such tough cost containment measures as imposing caps on insurance premiums and a price freeze on doctors and hospitals, sources said.

A White House spokesman declined Wednesday night to confirm or deny that Mrs. Clinton’s task force has backed away from a health benefits tax.

Most health policy analysts say that, if all employer-provided health benefits were fully taxed, the government would raise $50 billion to $65 billion annually. But the task force’s thinking all along had been that such a tax would be imposed only on the portion above a certain minimum level of benefits--set at perhaps $2,000 or $3,000 per worker.

Under that formula, the tax might have raised $15 billion to $20 billion a year, analysts said.

In addition to raising revenue, a health benefits tax also would instill more cost awareness in consumers, encouraging them to choose less expensive packages of benefits, experts said.

But few dispute the tax’s political volatility.

The Administration of former President George Bush also fleetingly considered such a tax, which was mentioned in the original version of Bush’s budget in January, 1992. But after a firestorm erupted among congressional Republicans, the White House literally stopped the presses to delete the proposal.

Speculation that the Clinton Administration might tax health benefits surfaced shortly after the election.

In December, Clinton expressed support for such a tax, saying that he was “inclined to agree” with the notion that tax breaks for health benefits should be limited.

As recently as a month ago, senior Administration officials were saying privately that a tax on health benefits was very much “on the table,” particularly since the price tag for providing universal coverage might be $90 billion or more a year.

Amid such speculation, an array of powerful groups, led by organized labor--which considers taxation of benefits an unacceptable tax increase on middle-class Americans--began lining up to fight the measure.

Joining with labor have been a growing number of major corporations and segments of the insurance industry. When the coalition formed earlier this month, it became the first major public opposition to President Clinton on health care reform.