Senate eyes tax change to pay for health insurance

By Donna Smith

WASHINGTON (Reuters) - Experts urged Congress on Tuesday to cut tax breaks for employer-sponsored health insurance as a way to help pay to cover people without benefits.

The Senate Finance Committee, which is taking a lead in writing legislation to overhaul the $2.5 trillion U.S. healthcare system, is weighing spending cuts and tax increases to help cover the cost of expanding coverage to 46 million uninsured people.

Politicians, industry and the medical profession agree the situation is dire and a report to be released later Tuesday was expected to give a bleak assessment of Medicare, the government health program that covers seniors. Medicare is currently forecast to run out of money to pay hospitals by 2019, but the recession could push that date sooner.

Congress is looking closely at capping tax benefits for employer-provided healthcare, an option President Barack Obama and labor unions oppose. Currently employers can deduct the cost of the benefit and employees do not pay income taxes on it.

Robert Greenstein, executive director of the Center on Budget and Policy Priorities, said the so-called tax exclusion encourages people to spend more on medical services.

"It gives the greatest benefit to those with the highest incomes, although they are the group that least needs help paying for health insurance," Greenstein testified.

Michael Jacobson, executive director of the Center for Science in the Public Interest, suggested raising taxes on alcohol, soft drinks and foods high in fat and salt to encourage healthier eating and raise revenue.

But committee chairman Max Baucus said lawmakers must take into account what was "politically palatable." "Finding money that we can all agree on will not be easy," Baucus said.

EXPANDING MEDICAID

Separately, a report from the Kaiser Commission on Medicaid and the Uninsured recommended expanding the state-federal Medicaid program to cover poor adults and more children. It would cost $19 billion to expand the program, which already covers close to 60 million Americans, to include 20.9 million more adults and children, the report found.

Sixteen million more adults could be covered if Medicaid were expanded to cover those who live in households that earn less than 150 percent of the poverty line, currently $22,050 for a family of four, but states would have to contribute and they are already hit hard by the recession, the report said.

Private insurers, who scuttled the last attempt to overhaul healthcare in 1994, said they would welcome an expanded Medicaid as long as it adequately reimburses doctors and other providers and the wide disparities among state programs were eliminated, said Karen Ignagni, the head of industry group America's Health Insurance Plans.

Obama has said he wants to sign a healthcare overhaul into law by the end of the year. The Senate and the House of Representatives are working to pass bills through their respective chambers by August. That would give them time to work out their differences and meet Obama's deadline.

(Additional reporting by Andy Sullivan in Washington; Editing by Alan Elsner and Maggie Fox)