The Association of U S West Retirees



Idea on Hill:  Taxing Health Benefits
By Janet Adamy
The Wall Street Journal
Wednesday, May 13, 2009

The idea of taxing employee health-care benefits to raise money for an overhaul of the health system is gaining strength in Congress, although it drew criticism from Barack Obama when he was campaigning for president.

Experts lined up Tuesday before the Senate Finance Committee and said it is one of the best ways to pay for a health-care overhaul.  Many top Democrats support the concept.

Right now, employers and their employees don't pay taxes on health benefits.  In 2010, this effective tax exemption will represent a loss of some $297 billion in federal tax revenue, according to the Lewin Group, a health-policy consulting firm.

That figure is catching the attention of Congress because it needs to find a way to pay for the health-care overhaul sought by Mr. Obama.  A comprehensive plan that would include coverage for those now without insurance is expected to cost about $1.2 trillion over 10 years.  So far, the government has identified where it will get about half of that sum.

Raising the benefit-tax idea presents a political problem for Mr. Obama because on the campaign trail he opposed it, while his Republican rival, Sen. John McCain, made it a key plank of his health-care proposals.

Linda Douglass, a spokeswoman for the Obama administration, said Mr. Obama made clear during the campaign he was skeptical of taxing benefits, but in general he is open to ideas for overhauling health care other than the ones he put forth back then.

Leading Democrats say they still want the benefits to have some tax advantages.  "To be honest, I don't think we're going to repeal the exclusion," Senate Finance Committee Chairman Max Baucus (D., Mont.) said at Tuesday's hearing.  Instead, they are considering placing a cap on the amount that is tax-exempt, and higher-income employees could see the tax benefit curbed.

"I don't see how you put a package together ... unless you touch the exclusion," Robert Greenstein, executive director of the Center on Budget and Policy Priorities, a left-leaning think tank, said at Tuesday's hearing.

Some health-policy specialists say the tax-exempt employer health benefits are inefficient because they encourage the purchase of more expensive plans.  They also contend the tax rules are unfair because they benefit employers but not individuals who buy coverage on their own.

Those who oppose changes to the tax break say that without it, employers would be inclined to drop coverage.

Senators weighed other ideas for raising money.  One of the leading options is changing the payment system for doctors, hospitals and other care providers so their compensation is driven more by the quality of care than the quantity of treatments.  New taxes on alcohol and soda also are on the table.

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