Clinton ponders 'sin' tax to pay for health plan Increased levies on tobacco one of several options

February 26, 1993|By John Fairhall | John Fairhall,Washington Bureau

WASHINGTON -- President Clinton strongly hinted for the first time yesterday that higher tobacco taxes might be necessary to finance medical benefits for all Americans.

He said his task force on health care reform was examining "lots of options" for raising money "which wouldn't necessarily increase middle class tax burdens."

The idea of taxing employee health benefits, for which Mr. Clinton indicated some support in December, now is being viewed much less favorably by the administration. Sources familiar with the task force's discussions say it is increasingly considering the more politically appealing idea of applying stringent cost controls to health insurance companies, hospitals and doctors.

The administration is reluctant to propose new taxes on the middle class on top of those included in Mr. Clinton's economic ** program. But health insurance companies, hospitals and doctors are an easy target because, according to polls, many Americans believe they are greedy and responsible for rising costs.

One proposal being examined is limiting the amount by which insurers could raise premiums each year. Other possibilities include taxes on the revenues of insurance companies and health care providers such as hospitals.

First lady Hillary Rodham Clinton, the task force leader, might be asked about those ideas when she travels to Maryland today to meet with ordinary citizens at Jimmy's Restaurant in Fells Point, a favorite breakfast haunt of Maryland Democratic Sen. Barbara A. Mikulski.

She also will meet with the U.S. Senate Republican task force on health care at the Maryland Inn in Annapolis.

Mr. Clinton said no decision has been made on tax increases related to health care, but he made it clear that the possibility of increased taxes on tobacco and alcohol -- which his budget director, Leon E. Panetta, recently cited as an option -- was being considered seriously .

"I think we are spending a ton of money in private insurance and government tax payments to deal with the health care problems occasioned by health habits, and particularly smoking," Mr. Clinton said. "It's costing us a lot of money."

Asked whether his interest in avoiding undue burdens on the middle class would rule out a cigarette tax increase, Mr. Clinton said, "I think health-related taxes are different. I think cigarette taxes, for example, are different. You do have to find some way to recover some revenues to cover people who now don't have coverage."

pTC Task force members don't think that increasing tobacco and alcohol taxes will be sufficient. Federal taxes on those products brought in $13 billion in 1992.

Taxes on guns and ammunition -- which the task force is also considering increasing -- raised $140 million in the same year.

Mr. Clinton's health advisers told him after the November election that guaranteeing universal access to medical care might mean $30 billion to $90 billion of additional annual government expenditures by 1997.

Taxing employee benefits theoretically could generate large amounts of revenue. According to the private Employee Benefit Research Institute, employers will pay $188 billion in untaxed health care benefits for employees this year.

However, the task force has been considering taxing only benefits that exceed a standard benefit package that all Americans would be guaranteed under the reform goals set by the president.

And, because the task force is considering a comprehensive benefit package that includes long-term care and prescription drugs, it is less likely that millions of Americans and their employers would choose to pay for an even more comprehensive insurance plan, and that would reduce the potential tax revenues.

"It is still an option," a source said yesterday of taxing employee benefits. But it more likely would be used as a long-term device for discouraging excessive consumption of health benefits rather than for collecting revenues. Under that scenario, a fairly high tax threshold would be set, well above the initial standard benefit package.

The other obstacle to taxing benefits is public opposition. "There's been a rash of polls showing very strong, broad-based opposition," said John Rother of the American Association of Retired Persons.

Sources familiar with the task force's discussions say cost controls on insurance companies and providers of health care would generate huge, immediate savings that would make it easier to provide benefits to the 35 million Americans who lack them.

Another reason the administration is interested in such controls is that they would rein in health care costs, now rising 11 percent a year, and boost the economic recovery, the sources said.

The cost controls would be short-term and would be phased out as long-term savings were realized. The task force members think that in the long run, it is possible to save several hundred billion dollars a year by restructuring the financing and delivery of health care to eliminate waste, bureaucracy and excessive profits.

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