Two influential Democrats with close ties to President Obama endorsed on Monday taxing some employer-provided health benefits as part of a $1.2 trillion 10-year framework for financing a health system overhaul, another sign that Mr. Obama may end up accepting a tax that he rejected during his campaign.
Former Senate Majority Leader Thomas Daschle, who was a senior adviser to the Obama campaign, and former White House chief of staff John Podesta, who managed Mr. Obama’s post-election transition, joined to promote a plan to get roughly one-third of the $1.2 trillion from new tax revenues and the rest from savings in Medicare and Medicaid payments to hospitals, doctors, pharmaceutical companies and other health-care providers.
While the House Democratic majority and most labor unions oppose taxing health benefits, the bipartisan leadership of the Senate Finance Committee favors it. Mr. Obama likely will have to settle the issue.
The current break is the largest subsidy in the tax code; with tax-free benefits going to about 160 million Americans, the government forfeits roughly $250 billion a year. Most economists argue that the tax break fosters costly insurance plans, discourages price-shopping and encourages overspending on health care.
The framework that Mr. Daschle and Mr. Podesta outlined in a meeting with reporters proposed two ways to raise revenues from employer-paid health coverage: Their preferred option would limit the business deduction that employers could take for insurance coverage. The alternative would require employees to pay more taxes, by capping the amount of their coverage that is tax-free.
Mr. Obama, who is insisting than any health legislation not add to deficits, has not ruled out taxing employee benefits. But as a candidate he attacked his Republican rival, Senator John McCain of Arizona, for advocating a “tax on the middle class” by proposing to end the exclusion from taxes for employer-provided health benefits.
Mr. Daschle declined to say whether he had agreed with Mr. Obama’s attacks at the time. But Mr. Daschle pointed out that Mr. McCain proposed to repeal the tax break, not to limit it. “Nobody’s proposing repealing the exclusion,” Mr. Daschle said.
He and Mr. Podesta appeared alongside the authors of the financing framework, Judy Feder, a public policy professor at Georgetown University, and David Cutler, a Harvard economist. Their plan also would have a “pay or play” requirement for larger employers to either provide health benefits or pay toward employees’ coverage through private plans or from the government. Also, they propose that the government collect roughly $200 billion over 10 years from higher “sin taxes” for tobacco products, alcoholic beverages and sugar-sweetened drinks.
Like Mr. Obama, the group supports a public option along with private insurance plans as part of a new insurance exchange for consumers to pick from. “I can’t imagine a more important step for controlling costs,” Mr. Daschle said. Most Republicans in Congress are opposed, arguing the public option would amount to unfair competition. But as the Democrats noted, recent polls show most Republican voters favor a public option.
The framework projected big savings after the upfront costs of the first decade as the health system becomes more efficient through information-sharing technology, research into cost-effective treatments, payment changes and other reforms. Rising medical costs are the biggest factor behind forecasts of future unsustainable deficits.
With the House and Senate poised separately to draft health legislation when they return from the week’s Fourth of July recess, Mr. Daschle predicted the month will be “the most historically consequential period for health reform perhaps” in history.
He was the second-ranking Senate leader when former President Clinton tried and failed to overhaul health care to provide universal coverage in 1993-1994, and Mr. Podesta was staff secretary in the Clinton White House. On Monday both men said they believe the prospects for passing a bill this year are better than 50-50.