'Mainstream' health plan called threat to coverage

August 21, 1994|By New York Times News Service

WASHINGTON -- Business groups and labor unions said yesterday that a bipartisan health care proposal offered Friday by a group of nearly 20 senators would create perverse, unintended incentives for employers now providing health insurance to drop it.

In addition, the proposal has created an odd alliance between the AFL-CIO, a longtime crusader for national health insurance, and Sen. Phil Gramm, R-Texas, a conservative to whom such proposals are anathema.

Both detest the bipartisan group's proposal for a new tax on health insurance benefits richer than a standard package to be defined by the federal government.

Many unions have given up wage increases to win such extra coverage.

The bipartisan proposal, announced by Sens. John H. Chafee, R-R.I., and John B. Breaux, D-La., illustrates both the advantages and the pitfalls of attempts to find a middle ground.

The proposal avoids the most politically contentious elements of the plans offered by President Clinton and by the Democratic leaders of the House and the Senate.

It would not require employers to pay anything for employee health benefits. There is no "employer mandate" and no threat of one.

Sen. George J. Mitchell of Maine, the majority leader, said Friday that he would study the Chafee group's suggestions and decide in a few days whether to accept any of them.

But the reactions of those to the left and the right of the "Mainstream Coalition," as the group is known, suggest that efforts to gain some votes may cost others.

Instead of employer mandates, the bipartisan proposal encourages states to form insurance-purchasing cooperatives.

It would provide billions of dollars in federal subsidies to help low-income people buy private insurance.

Self-employed people and workers who received no coverage from their employers could take tax deductions for the full cost of insurance premiums covering the standard package of health benefits.

Richard Smith, director of health policy at the Association of Private Pension and Welfare Plans, a trade group composed mainly of Fortune 500 companies, said yesterday, "The big consequence of this proposal is there's a real possibility that a lot of employers will drop insurance they now provide to employees.

"Employers now offering coverage would give employees cash instead," Mr. Smith said.

"The employees could buy coverage at group rates with tax-free dollars. A lot of younger, healthier employees will bail out of the market, take the cash, not the insurance."

Sen. Paul Wellstone, D-Minn., expressed similar concerns about the new proposal.

"Subsidies and tax deductions for individuals, with no employer contribution required, would result in employers' reducing coverage while enjoying a government-subsidized bailout," Mr. Wellstone said.

People who lost insurance in this way would become eligible for federal subsidies to help them buy private insurance.

That would increase the demand for subsidies, and the pool of money available for such assistance "would be drained without the predicted increase in overall coverage," Mr. Wellstone said.

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