New Payroll Deduction May Fund Health Plan : Policy: First Lady explains idea during meeting with senators. Value-added tax is all but dead, she indicates.

Seeking to raise about $60 billion to pay for health care reform, the Clinton Administration is eyeing a new payroll deduction akin to the taxes already being taken out of paychecks for Social Security, Medicare and disability insurance, Hillary Rodham Clinton said Friday.

Consulting with more than 50 Republican and Democratic senators in a morning meeting, the First Lady also made clear that the White House has all but ruled out a national sales tax, also known as a value-added tax. That idea has met with bipartisan opposition in Congress.

She also disclosed that the Administration is now inclined to give medical providers a year or two to voluntarily restrict price increases, with a mandatory price freeze in the wings if voluntary efforts do not keep medical inflation in line with the rest of the economy, senators said.

In her meeting with the senators, she described the new payroll deduction under discussion as a “premium” and not a tax because rather than going to the government, the funds would go directly to large consumer cooperatives set up throughout the nation to buy insurance for members, according to Sen. John D. (Jay) Rockefeller IV (D-W. Va.), the Administration’s point man on health care.

Such a new payroll levy--perhaps 1% or 2% for the individual wage-earner--would be an alternative to a government mandate that all companies buy health insurance for employees, according to Administration proponents of the payroll deduction.

The payroll deduction plan also would require employers to pay a certain percentage of their payroll directly to insurance-purchasing cooperatives. Typically, companies that provide insurance to their employees now pay premiums directly to insurers.

Some exemptions are likely for very small businesses, perhaps to be determined by the size of their payroll, sources said. Other details about the tax were not available.

The First Lady disclosed little more about the Administration’s emerging health care reform agenda--largely because many fundamental decisions have not been made. The process has been delayed in part by a lack of reliable medical statistics, she said.

The stated purpose of her latest visit to the Capitol was bipartisan consultation. And it appeared to be a rousing success, judging from the post-meeting rhetoric.

Republicans and Democrats alike hailed her appearance as reflecting a spirit of bipartisanship that they say will be vital if health care reform is to be enacted.

“It’s very useful for the White House to reach out to people and I’m appreciative of it,” said Sen. Phil Gramm (R-Tex.). “I think this is an important first step.”

Senate Minority Leader Bob Dole (R-Kan.), who led the Republican effort that handed President Clinton his first big defeat last week on a $16.3-billion job stimulus package, said he agreed with Hillary Clinton that health care reform should be a bipartisan effort. “So we’re prepared to be responsive,” he said.

The First Lady vowed that there would be further consultations in the weeks ahead. She said that the White House Task Force on National Health Care Reform, which she chairs, still intends to have a plan ready for the President to announce by the end of May.

Still, she left room for a delay, saying that “we intend to get this as right as we can. We want to make sure that every question anyone has is answered.”

She also disclosed, in a post-meeting press conference, that her task force has been looking closely at various Republican health care reform proposals introduced last year in both the House and Senate, adding that the President’s own agenda likely will include elements that Republicans have advocated.

Several Democratic senators said they came away from the meeting with the impression that the Administration now believes it needs to raise between $40 billion and $60 billion to finance the reforms.

In addition to barring insurance practices that discriminate against small groups and unhealthy individuals, the Administration is expected to seek tort reforms that limit medical malpractice litigation and to gradually provide coverage to the estimated 37 million uninsured Americans.

The degree to which taxes must be raised to pay for universal coverage depends on how quickly the President wants to phase in such coverage and on the comprehensiveness of a package of benefits that will be guaranteed to Americans.

Currently, payroll taxes total 15.3%, split evenly between the employer and the worker. The deductions for workers include 6.2% for Social Security and 1.45% for Medicare.

Each percentage point increase in the payroll deduction would raise about $25 billion, according to Edie Rasell of the Washington-based Economic Policy Institute.

While Hillary Clinton told the senators that the value-added tax has fallen well down the list of funding options, she confirmed that an increase in “sin taxes” is likely.

“We are exploring a lot of different options, as we have continually done over time, because we want to be sure that we get it right,” she said.

“And until we finish our meetings with members of Congress, and until we get these numbers finally determined to whatever level of accuracy we can rely on, I’m not going to make any statement about exactly where we’re going to come out on that.”

She also said the Administration intends to drastically eliminate insurance red tape.

White House analysts have concluded that unnecessary medical procedures cost $130 billion a year, while administrative red tape and waste cost another $70 billion.

“I think if you can get about a third to a half of it out, you’re doing good,” said Ira Magaziner, the task force’s manager.

The degree to which such projected savings are being factored into White House cost estimates is not clear.

According to Rockefeller, among the key decisions yet to be made is whether to tax “luxury” benefits offered by health plans that exceed the elements of a government-designed benefits package.

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