Health Plan Backs Off Benefits Tax : Insurance: Proposal rejects levy on current coverage that exceeds the Administration’s package. It would grant exemptions that would be lifted in 8 to 10 years.

White House officials said Monday that most existing employer-provided health benefits would not be taxed as personal income under President Clinton’s health care reform plan.

Health planners had considered imposing taxes on company health benefits that exceeded those specified under the President’s proposal, a step certain to draw opposition from workers with generous benefits.

Instead, said Kevin Anderson, a White House health care spokesman, additional benefits in place as of last Jan. 1 will be exempt from taxes--provided that the employer registers for the exemption with the Internal Revenue Service.

The exemptions would remain for eight to 10 years. By then, the standard benefits package will have expanded to include most services Americans now have, such as adult dental care, which initially is not in the government plan, senior Administration officials said.

Thus, they insisted, most Americans would never have to pay income tax on most of the medical benefits they now enjoy.

But employees would be taxed for higher-level benefits added since Jan. 1. Company plans established after that date presumably would not be eligible for the exemption.

Under current law, employers are allowed to take a full tax deduction for every dollar they contribute toward employee health insurance costs. Clinton will retain that provision, senior Administration officials said.

Also under current law, all health benefits that workers receive from employers are not counted as personal income and therefore are not subject to taxation. But Clinton intends to end this exclusion as part of his comprehensive health care reform agenda, although with important exceptions, such as the one announced Monday.

Labor contracts derived from collective bargaining will also be exempt from the tax for eight to 10 years, Administration officials said. The White House rationale is that in recent decades, many employees, especially union workers, have received added health benefits in lieu of wage increases--precisely because they and their employers both received favorable tax treatment under existing law.

It would be unfair to begin suddenly taxing such workers for their relatively generous health benefits, Administration officials said. The eight-to-10-year grandfather clause would give sufficient time for workers to begin recouping some of the lost wages, officials said.

Senior Clinton aides have said the President intends to propose phasing in universal coverage by the end of 1997, although he plans to include various financial incentives to encourage states to enter the new health care system by 1996.

Starting today, Clinton is expected to consult with members of Congress and assorted interest groups on the details of his plan, a process expected to continue up to the time he delivers his proposals in a speech to a joint session of Congress sometime around Sept. 20.

About two weeks after that, he will submit detailed legislation to Congress, aides said.

Among the decisions still facing the President is whether the government should pick up the cost of covering middle- and low-income retirees who have not reached the age of 65, when they would become eligible for Medicare. That cost could be as high as $10 billion a year.

A senior White House official said Monday night that the issue is “not resolved” largely because of continuing discussions over the amount the government should charge companies most likely to benefit from publicly funded coverage.

According to Administration calculations, the nationally guaranteed benefits package will cost, in 1994 dollars, an average of $1,800 for individuals and $4,200 for families, allowing for regional variations.

The benefits package will include a broad spectrum of preventive services as well as coverage for prescription drugs and a start toward long-term care. But largely because of financial constraints, coverage for adult dental services and full mental health services, for instance, must be delayed until the year 2000, officials said.

The main financing mechanism for Clinton’s proposals is a government requirement that all employers pay at least 80% of the cost of the health insurance premiums of every worker. The employee must pay the remainder.

Using the estimated average cost of the standard benefits package, for instance, that means a company must pay $3,360 for a worker’s family policy, with the employee paying the other $840 a year.

Of the estimated 37 million uninsured Americans, about 85% are already employed. So an employer-and-individual mandate would go a long way toward universal coverage.

Employers with fewer than 50 workers whose wages average less than $24,000 a year will be eligible for discounts.

There will also be ceilings to limit overall premium contributions, officials said. The latest figures--still being calculated--would limit large employers’ premium contributions to 7.5% to 8.5% of payroll, small employers to about 3.5% of payroll, and workers to about 2% of salary.

The unemployed will have their premiums paid for by the government. And while the self-employed must pay both the 80% employer contribution and the 20% employee contribution, these payments will be tax-deductible.

The White House is also planning to raise “sin taxes” on cigarettes and possibly on liquor as a way to come up with about $15 billion annually, which would pay for covering the uninsured in the first two years of the plan and then to help pay for long-term care, officials said.