WASHINGTON -- The Bush administration is considering a tax on workers' health benefits to finance medical coverage for more than 30 million uninsured Americans, Health and Human Services Secretary Louis Sullivan says.
The approach, which Sullivan refers to as a "tax cap," would make employer-paid health benefits above a certain dollar amount subject to tax as personal income.
"We are looking at a number of strategies, such as a 'tax cap' on employer-provided health care to provide funds for those who don't have [insurance]," Sullivan told the House Ways and Means Committee yesterday.
Though Sullivan was careful to say that all health-care policy options are open and no decisions have been made, a Senate Republican health policy task force is considering a "tax cap" approach to address the problem of the uninsured. The task force is expected to announce a proposal within a few weeks.
Here's how it would work: The government would set a cap on the amount of employer-paid health insurance premiums that would continue to be tax-free. For example, if the "tax cap" were set at $1,200 for a single worker, a worker whose employer paid $1,300 in health insurance premiums would be taxed on the additional $100. The cap would be higher for married workers to reflect the cost of family health coverage.
Currently, the employer's share of a worker's health plan premiums is not counted as income to the worker. Sullivan said that represents $56 billion a year in foregone tax revenue.
Nationally, the average employer contribution to workers' health insurance is $1,400 for a single employee, and $3,200 for family coverage. Previous efforts to tax health-care fringe benefits have been blocked by organized labor.
Sullivan appeared before Ways and Means to answer criticism about the administration's silence on the problems of access to health care and runaway costs. Rep. Dan Rostenkowski, D-Ill., chairman of the tax-writing committee, has made health-care reform the year's top priority.
In a written statement to the committee, Sullivan said current tax law encourages "Cadillac-type coverage," driving up the cost of health care and health insurance.
"Is it fair," he asked, "for a working person of modest means without health insurance to subsidize, through his taxes, the broad coverage for non-essential care of higher income workers?"