Capping the amount of tax-free health insurance premiums paid by employers at the average cost for families and individuals would raise nearly $19 billion in new tax revenue in 1994, according to estimates from the Congressional Budget Office.
The estimates surfaced last week in CBO testimony before a Senate Finance Committee hearing on limiting the amount of health benefits that employers can provide and employees can receive without incurring any tax liability. Many healthcare reform proposals in Congress include provisions to cap the amount of tax-free benefits as a means of raising revenues and curbing healthcare costs.
Sen. Daniel Patrick Moynihan (D-N.Y.), chairman of the Finance Committee, told reporters that the tax cap would be a "real issue" for the panel as it begins the task of writing a healthcare reform bill. He said President Clinton had put the issue on the table by proposing a tax cap on health benefits in the year 2004. Under Mr. Clinton's proposal, benefits above those in his reform plan's standard benefits package would be taxed.
But Mr. Clinton has repeatedly criticized other, less-generous tax caps, calling them middle-class tax increases. Mr. Moynihan acknowledged formidable obstacles to the cap, most notably organized labor. "It is clear that the AFL-CIO will not have this," he said.
At the same time, he warned at the outset of the hearing that social policy, including healthcare reform, could only be achieved by applying "severe fiscal restraint. We have no money."
In an April 25 letter to Mr. Moynihan, 22 labor unions collectively argued that a tax cap would impose a "disproportionately heavy burden on middle-income and working poor families" and warned that it would ultimately raise health costs by discouraging the use of preventive services.
But Rosemary Marcuss, assistant director for tax analysis at the CBO, told the finance panel that the current tax subsidy "contributes to the high cost of health insurance" by cushioning workers against their true healthcare costs and reducing incentives for workers and employers to make thrifty health insurance choices.
According to the CBO, high-income families benefit the most from the health insurance tax subsidy.