Democrats considering tax on health benefits

Despite a less-than-rousing reaction from the Obama administration, House Democrats are considering a new tax on employer-provided health benefits to help pay for expanding coverage to the uninsured.

Several officials also said an outline of emerging legislation envisions a requirement for all individuals to purchase affordable coverage, with an unspecified penalty for those who refuse and a waiver for those who cannot cover the cost.

"There’s no sense having a mandate unless you have a contribution," Rep. Charles Rangel, D-N.Y., chairman of the House Ways and Means Committee, said Monday. He referred to the suggestion as "play or pay."

Rangel and other senior Democrats arranged to bring members of the party’s rank and file up to date at a midday session Tuesday on the effort to draft health care legislation at the top of President Barack Obama’s agenda.

No details were available on the possible tax on health benefits, and several officials stressed that no final decisions would be made for several days.

The idea has been gaining currency in recent weeks as Congress intensifies its search for more than $1 trillion to help pay for a health care overhaul.

Sen. Max Baucus, D-Mont., first floated the idea several weeks ago, and emerged from a White House meeting last week saying Obama was open to it.

Obama’s top aides did not disagree, even though the president attacked the idea lustily last year when campaign rival John McCain proposed it. Instead, White House officials say Obama prefers his own suggestions: cuts in projected Medicare spending and tax increases on the wealthy that thus far have gained little favor among Democrats in Congress.

Several officials said the House legislation will include a government-run insurance option as well as plans offered by private companies. The government option draws near-unanimous opposition from Republicans and provokes concerns among many Democrats as well, although Obama has spoken out in favor of it.

The officials spoke on condition of anonymity, saying they did not want to pre-empt the presentation to rank-and-file Democrats on Tuesday.

Under the House Democratic plan, individuals and small businesses would be able to purchase coverage from a "health exchange" and the government would require all plans to contain a minimum benefit, these officials added. No applicant could be rejected for pre-existing conditions, nor could one be charged a higher premium, they said.

House Democrats also are considering a wide-ranging change for Medicaid that would provide a uniform benefit across all 50 states and increase payments to providers, according to several officials. Medicaid is a joint state-federal program of health coverage for the poor.

The disclosures came as the pace of activity quickened in both the House and Senate on health insurance legislation. Obama scheduled a meeting Tuesday at the White House with several Democrats.

Party leaders hope to pass legislation in both houses by early August and complete work on a compromise measure in the fall for Obama’s signature.

The president has stepped up his own involvement in the issue in recent days, and there has been a flurry of negotiations involving outside interest groups who have pledged to take steps to achieve savings within the private insurance market.

Alongside those efforts, financing Obama’s plan to spread coverage more widely carries a price tag estimated at more than $1 trillion over a decade. House Democrats are considering cutting projected Medicare payments to home health care, pharmaceutical companies, insurance companies, hospitals and others to cover costs, but not on the scale that the president proposed last winter.

The option for taxing insurance benefits is also under consideration as part of legislation taking shape across the Capitol in the Senate Finance Committee.

Numerous options are possible, many of which involve either a tax levied according to the value of an individual’s employer-provided health plan or on the benefits received by upper-income taxpayers.

The issue poses multiple potential problems for Obama, who has pledged not to raise taxes on individuals making less than $250,000 and also ran commercials criticizing McCain’s call for a tax on health benefits in last fall’s campaign.

In recent weeks, the president and his aides have sought to straddle the issue, neither accepting it nor ruling it out.


Associated Press writer Ricardo Alonso-Zaldivar contributed to this report.