Payroll Levy Idea in Health Plan Detailed

A new mandatory payroll deduction being considered by the Clinton Administration to finance health care reform could be as high as 7% for companies and 2% to 3% for workers, Hillary Rodham Clinton told representatives of unions and consumer groups Thursday.

Such a levy would come on top of deductions of 7.65% already being taken out of workers’ paychecks for Social Security and Medicare that are matched by their employers. The new levy would allow employers to stop paying insurance companies directly for covering their workers.

A broad health care payroll deduction based on a percentage of income would hit hard at highly compensated workers, who typically pay much less than 2% or 3% of their income for medical coverage, analysts said. Most union workers also would feel a jolt since they pay little out-of-pocket for their often-generous health care plans.

Similarly, a 7% payroll levy would be a blow to companies--mostly small businesses--that do not offer medical insurance to their workers. Among the corporate beneficiaries would be many manufacturing companies with an aging work force--such as auto companies--that now pay 14% or more of their payroll for employee health benefits.

As envisioned by the White House, funds generated by a health care payroll tax would go directly to large consumer cooperatives set up throughout the country to buy insurance for members.

It is unclear whether such a payroll levy, if adopted by Congress, would be sufficient to finance the overall health care reforms being planned by the Clinton Administration.

White House adviser Ira Magaziner said 37 million Americans are uninsured and another 22 million have inadequate coverage. Providing for them could cost as much as $30 billion to $90 billion a year, or more, depending on how comprehensive the benefits package is and how quickly the uninsured can be brought under the umbrella of universal coverage.

The Administration is considering about 20 other possible tax options, including “sin taxes,” although the President and Hillary Clinton seem to have ruled out a national sales tax.

Health care analysts said Thursday that a 9% or 10% payroll levy could raise about $300 billion a year--but that would be offset by the estimated $200 billion being spent now by employers for workers’ health benefits and the estimated $55 billion being spent by employees themselves.

Analysts said each percentage point in the payroll deduction would raise $25 billion or more.

The First Lady, who chairs the White House Task Force on National Health Care Reform, disclosed the payroll deduction projections during a meeting Thursday morning hosted by Sen. Paul Wellstone (D-Minn.).

In her third visit to Capitol Hill in less than a week, the First Lady stepped up her consultations while the task force refines its final recommendations to President Clinton. The President is expected to introduce his legislative package in mid-June.

From the Capitol, Hillary Clinton returned to the White House, where she joined her husband as hosts of a luncheon for members of the congressional Republican health care task force.

Sen. John H. Chafee (R-R.I.), the group’s leader, said later that he would oppose a payroll tax. But he and others who attended said they are pleased to be kept informed by the Administration as it completes its plans for overhauling the nation’s health care system.

Hillary Clinton reiterated Thursday that the Administration’s reform agenda will only make a start toward full coverage of long-term care, beginning with home-based and community-based care designed to keep people self-sufficient and independent as long as possible.

She initially discussed a new health care payroll levy last Friday during a meeting with more than 52 members of the Senate, saying it is not a tax because the funds would go directly to large groups of purchasing cooperatives that would buy medical coverage for consumers--not to the government.

Today, Hillary Clinton is scheduled to address the chief executives of some of the nation’s largest corporations at a conference in Williamsburg, Va., where she is expected to discuss the impact of health care reform on corporate America.