Health Tax Break Draws Fire

Sen. Max Baucus and several witnesses talked today about the possibility of Congress limiting the current federal income tax exclusion for group health coverage.

“I know that there is some controversy” about looking at the current tax treatment of health care, Baucus, D-Mont., the chairman of the Senate Finance Committee, said today at a committee health finance hearing.

“Some do not want to modify the current unlimited exclusion for employer-provided health care,” Baucus said, according to a written version of his remarks. “And I agree that we are not going to eliminate the exclusion.”

But the current tax exclusion “is regressive,” Baucus said. “It often leads people to buy more health coverage than they need. We should look at ways to modify the current tax exclusion so that it provides the right incentives. And we should look at ways to make it fairer and more equitable for everyone.”

Congress also should take a look at “tax-preferred health accounts and the itemized deduction for health expenses,” Baucus said. We should try to make sure that those benefits are structured fairly and efficiently.”

Adopting President Obama’s proposal to limit itemized deductions, including health care deductions, is another option, Baucus said.

President Bush engaged in unsuccessful efforts throughout his presidency to limit the group health tax exclusion to pay for his administration’s health finance reform proposals.

James Klein, president of the American Benefits Council, Washington, appeared at today’s hearing to defend the group health tax exclusion.