Benefits tax advances in health care negotiations

Wednesday, June 24, 2009 | 5:26 p.m. CDT; updated 11:18 a.m. CDT, Thursday, September 3, 2009

WASHINGTON — Taxing workers for employer-provided medical benefits could become the next big controversy for President Barack Obama in his quest to overhaul the nation's health care system.

A key senator involved in efforts to reach a bipartisan compromise said Wednesday the $1 trillion, 10-year package probably can't be paid for without taxing at least some high-value health care plans.

Obama adamantly opposed such a change in last year's presidential campaign but has since left the door open. Kathleen Sebelius, the U.S. Health and Human Services secretary, told House lawmakers Wednesday that Obama is willing to listen to suggestions on how to pay for a health care overhaul, as long as they don't increase the deficit.

Sen. Kent Conrad, D-N.D., the Senate Budget Committee chairman, told reporters, "it's hard to see how you have a package paid for" that doesn't include a benefits tax.

Sen. Max Baucus, D-Mont., the Senate Finance Committee chairman,  said "there's a lot of merit" to Conrad's point.

Discussion on the benefits tax is starting to come together, Baucus said. The idea would be to tax as income the portion of health benefits worth more than a specified limit. Senators are considering several options, including one that would set the limit at $17,240 for family coverage and $6,800 for individuals. Plans worth more than that would be taxed.

By comparison, the Blue Cross Blue Shield Standard Option offered to federal employees — which reflects the broad market — costs about $13,400 for family coverage and $5,900 for individuals.

Obama's proposal to limit tax deductions for wealthy individuals is "on the table" even though lawmakers previously had dismissed it, Conrad said.

Of the five House and Senate committees working on health care, Finance is the only one that appears to have a chance at a bipartisan agreement.

Obama and his administration stepped up the campaign for a comprehensive health care overhaul that would reduce costs and provide coverage to nearly 50 million uninsured Americans. The president met with several Republican and Democratic governors Wednesday afternoon and planned a prime-time town hall to be broadcast on ABC.

"There's no perfect unanimity across the table in terms of every single aspect of reform," Obama said after the meeting with Republican Govs. Jim Douglas of Vermont and Mike Rounds of South Dakota, and Democrats Jim Doyle of Wisconsin, Jennifer Granholm of Michigan and Christine Gregoire of Washington.

But Obama said the administration was committed to working with governors.

In an interview with ABC News that aired Wednesday morning, Obama declined to say whether he was open to taxing health benefits. But he indicated there was a breaking point in the balance sheets where he would say that the cost of reforming the system is too great for the federal government to handle.

"I'm going to wait and see what ideas ultimately they (Congress) come up with," he said on ABC's "Good Morning America."

"I think that if any reform that we get is not driving down costs in a serious way," Obama added. "If people say, 'We're just going to add more people onto a hugely inefficient system,' then I will say no. Because ... we can't afford it."

In addition to the benefits tax, three other complex issues continue to bedevil the bipartisan negotiators. They include the overall cost of the plan, requiring employers to contribute to the costs of covering their workers and whether to set up a government insurance plan to compete with private companies.

Sebelius defended Obama's call for a new public plan in the face of strong opposition from Republicans and fresh criticism from a powerful business group.

She told the House Energy and Commerce Committee that a government-run option would increase choice and competition, but the U.S. Chamber of Commerce said in testimony that it would "gut the private market."

"Whether or not this proposal is a Trojan horse for single-payer health care, it is apparent that its cause is ideological, not pragmatic," the Chamber said Wednesday.

"If there is no choice in the market, cost regulation is almost irrelevant. It's a marketplace strategy that competition is often more effective than heavy-handed regulation," Sebelius said.

Republicans and outside groups are making the public plan issue a focus of stepped-up television ad campaigns that warn of a government takeover of health care, contending the result would be rationing of care similar to Canada and other countries.

But Sebelius said that "rationing, frankly, is something that happens each and every day under our current system." It's done by private insurers, she said.

"Health reform constitutes our most important domestic priority," she said.

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