Clinton Plan Seeks End to Pretax Health Savings : Insurance: White House fears deductions encourage medical spending. Many use them to pay doctor bills.

The Clinton Administration would like to kill a tax break that many Americans now use to lower their health care costs, White House officials said Tuesday.

Under the Administration’s health care reform plan, the medical “flexible savings accounts,” which allow workers to use pretax savings to pay medical bills, would be eliminated. That change, in effect, would result in a sharp tax increase for millions of American workers who now are able to shelter from taxes as much as $5,000 each year and use the money to pay doctor and hospital bills.

White House health care officials, who are putting the finishing touches on the President’s health legislation, said Tuesday that they want to drop the savings accounts as a way of containing health care costs as the nation shifts over to the Clinton reform plan.

The Administration officials said they are fearful that the tax savings accounts would increase incentives for consumers to spend more money on health care than is necessary under the Clinton reform effort. The officials said that they do not want to provide any special tax benefits to relatively affluent workers and their families for health care spending. Those tax breaks might encourage overuse of health care services, or prompt consumers to spend more on supplemental health care benefits not covered by the Clinton plan.

“We don’t want to encourage people to be spending more on health care. . . . We don’t want to be encouraging more and more tax deductions for health care,” said one White House analyst.

But the proposal to eliminate the benefits may prove controversial once the Clinton plan is finally sent to Congress. Statistics on how much money is now sitting in the savings accounts, or the participation rates of eligible employees were not available. Currently, the savings accounts are available at 48% of all corporations that have more than 1,000 employees, according to a study by the Employee Benefits Research Institute, a Washington-based research firm. Another 8% of mid-size and large firms surveyed said that they plan to begin offering the benefits in 1993.

White House officials said they may decide to allow corporations that already offer medical savings accounts to continue to do so for as much as 10 years. The Administration has said previously that it would not impose new taxes on any existing tax-free benefits that employers provide their employees.

The savings accounts are not funded by employers and thus are not covered under that part of the Clinton plan. But one White House official said it is still possible that the Administration may consider “grandfathering” in existing savings accounts to live up to the earlier White House pledge.

“We have to decide whether this is considered an employer-provided benefit,” another official said.

Currently, employees who have the accounts estimate their families’ out-of-pocket costs for medical expenditures for the coming year, excluding insurance premiums. The amount then is withheld from paychecks and is not subject to taxes, which can amount to tax savings of more than 30% on the money in the account. As medical costs not covered by insurance are incurred, employees can draw money from their accounts.

A major disadvantage of the accounts is the difficulty in accurately estimating health care costs a year before they are incurred. Any funds left in the accounts at the end of the year go to the federal government.

The average employee who participates contributes $650 a year to the flexible accounts, which can result in annual tax savings of about $250, according to Money magazine. In addition to covering medical bills, flexible savings accounts are also available to cover child-care expenses. Those child-care accounts would not be eliminated under the White House plan.

Some Republican lawmakers, who already are attacking Clinton’s health plan and the financing mechanism the Administration has developed to pay for it, may join with outside health care analysts who believe that elimination of the savings benefit would amount to a disguised tax increase.

“These savings benefits are becoming more popular with companies and workers because they are tax-free,” noted a spokesman for the Employee Benefits Research Institute. “This change would represent a tax increase for people who use the plans now.”

Meanwhile, a congressional study released Tuesday indicated that it is far from clear whether a system limiting consumers’ choice in doctors and physicians’ choice of treatment--two fundamentals of Clinton’s health care plan--actually saves money.

The “managed care” concept has caught on in the corporate world, with about half of all private employers embracing it in the last 12 years. Some of its features have been incorporated in the Administration plan, which would require that all Americans be offered a managed-care alternative.

Under most managed care systems, consumers seeking medical care are limited to a network of doctors and hospitals and pay a flat fee for each visit. They can see a specialist only when their primary care doctor recommends it and their insurance company approves.

“Although many employers believe that they are saving money from network-based managed care, the evidence has been inconclusive about the extent to which such plans hold down employers’ costs,” the General Accounting Office reported. “For example, in some cases, employers have found that one-time reductions in cost growth accrue with managed care, but that rapidly growing health care costs resume in future years.”

The report was just one shot in the congressional battle over Clinton’s health care package Tuesday.

For example, the Republican Party launched a television ad campaign warning that Clinton’s plan would inevitably result in 3 million job losses, 100 new government bureaucracies, government price-fixing, rationing and delays.

The ad, which will air beginning today, urges viewers to call a toll-free number and request summaries of four different plans being advanced by congressional Republicans.