12% payroll tax said to be among health scenarios

June 04, 1993|By Edwin Chen | Edwin Chen,Los Angeles Times

WASHINGTON -- Many U.S. employers could face a payroll tax of 12 percent or more to finance health care reform under a plan now being considered by the White House, particularly if President Clinton adopts the most generous of three possible benefits packages his advisers have designed, sources said yesterday.

Until now, administration officials in private conversations have focused on 7 percent as the probable payroll levy on most employers and about 1.5 percent on workers, with special allowances to ease the burden on small businesses and low-wage earners.

But at least one working scenario under review within the White House would push the payroll tax well into double figures for many employers and 2 percent or higher for workers, according to sources with direct knowledge of the administration discussions.

"There is at least one benefits package for which 7 percent is not the right number," said one informed source.

"It didn't surprise me that one of those scenarios produced a startling high number," another source said. "But I don't know what that really means in that, politically, I can't imagine they would go forward with that kind of scenario. The ranges they looked at were very wide."

Some independent analysts have estimated conservatively that it would take a 12.5 percent payroll tax to pay for the kind of comprehensive health care reforms that the president and first lady Hillary Rodham Clinton and their advisers have espoused.

No final decisions have been made by the president, and the ultimate rate of any payroll levy will depend on a series of intricately linked options that he now faces.

Most notable among them: how quickly to extend universal coverage to the 37 million Americans who are now uninsured and how generous the standard package of benefits provided to all participants will be. The faster the phase-in period and the more generous the benefits package, the higher the payroll levy will need to be.

White House officials insist on calling the levy a "waged-based premium," arguing that it is not a tax because the revenues would not go into government coffers.

Rather, the money would go directly into large, regional consumer alliances that would buy insurance for members.

Under current administration thinking, a payroll tax on companies and workers would replace the estimated $255 billion that they now spend each year on health insurance.

Each percentage point in payroll deduction would raise $25 billion or more, according to economists and health policy experts.

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