Administration details high cost of president's health plan Plan may eliminate an employee tax break

October 20, 1993|By Los Angeles Times

WASHINGTON -- The Clinton administration plans to kill a tax break that many Americans now use to lower their health care costs, according to White House officials.

Under the administration's health care reform plan, the medical "flexible savings accounts," which now allow workers to use pretax savings to pay their medical bills, will be eliminated. That change will, in effect, result in a sharp tax increase for millions of American workers who now are able to shelter up to $5,000 a year from taxes in order to use those funds to pay bills to doctors and hospitals.

White House health care officials, who are now in the process of putting the finishing touches on the president's health legislation, said yesterday they want to drop the savings accounts in order to contain health care costs as the nation shifts over to the Clinton reform plan. The administration officials said that they are fearful that the savings accounts would increase the incentives for consumers to spend more money on health care than is necessary under the Clinton reform effort.

The officials said they don't want to provide any special tax benefits to relatively affluent workers and their families for health care spending. Those tax breaks might encourage over-use of health care services, or prompt consumers to spend more on supplemental health care benefits not covered by the Clinton plan.

"We don't want to encourage people to be spending more on health care . . . we don't want to be encouraging more and more tax deductions for health care," said one White House health care analyst.

But the proposal to eliminate the benefits may prove controversial once the Clinton plan is finally sent to Congress. Statistics on how much money is now sitting in the savings accounts, or the participation rates of eligible employees are not available. Currently, the savings accounts are available at 48 percent of all corporations that have more than 1,000 employees, according to a study by the Employee Benefits Research Institute, a Washington-based research firm. Another 8 percent of mid-size and large companies surveyed said they planned to begin offering the benefits in 1993, the group found.

White House officials caution that they may decide to allow corporations that are already offering medical flexible savings accounts to continue to do so for up to 10 years.

One White House official said that it was still possible that the administration may consider "grandfathering" in such existing savings accounts in order to live up to the White House's pledge not to impose new taxes on corporate health benefits that are now tax-free.

"We have to decide whether this is considered an employer-provided benefit," said one official.

Republican lawmakers, who are already attacking Mr. Clinton's health plan and the financing mechanism the administration has developed to pay for it, may join with outside health care analysts who already believe that the elimination of the savings benefit represents a hidden tax increase.

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