Panel Weighing ‘Luxury Tax’ on Health Benefits

With President Clinton poised to start weighing in on the specifics of a health care reform agenda, his White House task force is considering proposing a new “luxury tax” on some health benefits that workers receive from employers, informed sources said Tuesday.

The broad-based levy would target only those as-yet undefined benefits that go beyond the contents of a government-designed core benefits package intended to cover the 37 million uninsured Americans, according to those familiar with the deliberations of the presidential Task Force on National Health Care Reform.

“If there’s going to be a tax on health benefits, that’s what it would be--on benefits beyond a comprehensive package that we will propose,” a White House official said Tuesday. The task force, chaired by Hillary Rodham Clinton, is still debating the components of such a benefits package.

That a “luxury tax” is still under discussion seems to contradict recent statements by both President Clinton and Mrs. Clinton indicating that taxing employee health benefits had been ruled out in the face of stiff opposition from workers and their advocates. Such benefits now are not counted as taxable personal income.

Ira Magaziner, the health care task force’s day to day manager, has told health industry officials that a wage and price freeze on private doctors and hospitals may be necessary for two to three years to slow medical spending and buy time to phase in comprehensive health care reform, according to the Washington Post.

The newspaper also said that the task force this weekend is scheduled to present the President with various options on the specific targets for price controls and a separate working group is to discuss its findings on the most effective way to control drug prices.

Mrs. Clinton’s private opposition to the taxation of benefits was reported by The Times on Feb. 25. Later that day, the President, when asked about the matter, said: “I’m not ready to admit that the people who have paid the bulk for health care in the 1980s should turn around and pay more right now.”

More recently, the First Lady called such a possible tax unfair, telling the Associated Press in a March 8 interview: “In terms of any broad, general middle-class tax increase, it’s just not going to happen. . . . “

Yet, shortly afterward, Magaziner, the President’s senior policy development adviser, insisted that Mrs. Clinton’s remarks had been misinterpreted, explaining that she was simply trying to dispel any middle-class apprehension that it is facing a “humongous tax” to help finance health care reform.

In any case, the task force is under enormous pressure both to contain runaway health care costs and find new revenues to finance universal coverage. Task force analysts have told the President that providing universal health coverage could cost $90 billion or more a year.

Aside from a limited “luxury tax,” the task force also is considering ending the tax deductions that businesses now are permitted to take on the cost of health care benefits for their workers. That deduction now averages almost $4,000 for each employee, sources said.

Other possible sources of revenue to finance health care reform include increases in “sin taxes” on such products as tobacco, alcohol and handguns as well as tax hikes on the gross receipts of health care providers. Also under discussion is a cap on insurance premiums.

These are just some of the questions facing the President in the weeks ahead. He has vowed to unveil his health care proposals within the first 100 days of his Administration, a period that ends in the last week of April.

Clinton’s daily meetings on domestic policy increasingly are focusing on health care reform, according to White House Press Secretary Dee Dee Myers.

And starting this week, the sources said, the President is to start meeting regularly with his senior health policy advisers to begin narrowing the vast array of options assembled since the task force’s formation on Jan. 25.

When these meetings were first scheduled, task force members had expected to simply discuss with the President the available options on various topics. Instead, they quickly were told that Clinton wants to start making some of the decisions, sources said.

A defining issue facing the President, they said, is how quickly to phase in health coverage for the 37 million uninsured Americans. Given the costliness of that undertaking, Clinton must decide to what extent he is willing to raise taxes to achieve that goal.

Also on Tuesday, Mrs. Clinton confirmed a March 11 Times report that the task force intends to place insurance coverage for mental disorders and drug abuse on equal footing with coverage for physical ailments.