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
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
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
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
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