Volume 113 >> Issue 9 : Friday, February 26, 1993

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Clinton Ponders New Tobacco Taxes to Finance Health Care

WASHINGTON

President Clinton strongly hinted for the first time Thursday that he might raise tobacco taxes to finance medical benefits for all Americans.

He said his task force on health care reform was examining "lots of options" for raising money "which wouldn't necessarily increase middle class tax burdens."

The idea of taxing employee health benefits, for which Clinton indicated some support in December, now is being viewed much less favorably by the administration. Sources familiar with the task force's discussions say it is increasingly considering the more politically appealing idea of applying stringent cost controls to health insurance companies, hospitals and doctors.

The administration is reluctant to propose new taxes on the middle class on top of those included in Clinton's economic program. But health insurance companies, hospitals and doctors are an easy target because, according to polls, many Americans believe they are greedy and responsible for rising costs.

One proposal being examined is limiting the amount by which insurers could raise premiums each year. Other possibilities include taxes on the revenues of insurance companies and health care providers such as hospitals.

"I think we are spending a ton of money in private insurance and government tax payments to deal with the health care problems occasioned by health habits, and particularly smoking," Clinton said. "It's costing us a lot of money."

Asked whether his stated interest in avoiding undue burdens on the middle class would rule out a cigarette tax increase, Clinton said, "I think health-related taxes are different. I think cigarette taxes, for example, are different. You do have to find some way to recover some revenues to cover people who now don't have coverage."

But task force members do not think that increasing both tobacco and alcohol taxes will be sufficient. Federal taxes on those products brought in $13 billion in 1992. Taxes on guns and ammunition -- which the task force is also considering increasing -- raised $140 million in the same year.

Clinton's health advisers told him shortly after the November election that guaranteeing universal access to medical care might mean $30 billion to $90 billion in additional annual government expenditures by 1997.

Taxing employee benefits theoretically could generate large amounts of revenue. According to the private Employee Benefit Research Institute, the government could have raised $43 billion this year by taxing the $188 billion in health care benefits employers now are able to deduct from their taxes.

However, the task force has been considering taxing only benefits that exceed a standard benefit package that all Americans would be guaranteed under the reform goals set by the president.

Sources familiar with the task force's discussions say cost controls on insurance companies and providers of health care would generate huge, immediate savings that would make it easier to provide benefits to the 35 million Americans who lack them.

Another reason the administration is interested in such controls is that they would rein in health care costs, now rising 11 percent a year, and boost the economic recovery, the sources said.

The cost controls would be short-term and would be phased out as long-term savings were realized. The task force members think that in the long run it is possible to save several hundred billion dollars a year by restructuring the financing and delivery of health care to eliminate waste, bureaucracy and excessive profits.

One problem the administration would face if it chose to cap annual increases in premiums and health service charges would be "capturing" those savings, health experts say. Most of the savings would accrue to private employers, who provide the bulk of insurance coverage, and that would require the government to tax companies or otherwise to require them to cover Americans who now lack health benefits.

Insurance companies are critical of such proposals. They would do nothing to address the underlying causes of runaway medical costs, the companies say.