WASHINGTON — The Senate Finance Committee has released a paper that discusses several possible strategies for taxing group health coverage.

The paper also includes shorter sections discussing possible changes to the rules governing health savings accounts, flexible spending accounts and health reimbursement arrangements.

The Senate Finance Committee will hold a hearing on health finance policy options Wednesday.

The government has no choice but to change the U.S. health care and health financing systems, Senate Finance Committee Chairman Max Baucus, D-Mont., says in a statement about the financing options paper.

“Without health care reform, health care spending will reach $4.4 trillion by 2018,” Baucus says.

The authors of the paper discuss strategies for cutting health care costs, imposing “lifestyle-related revenue raisers,” and changing the exclusion for employer-provided health coverage.

The current tax-free status of group health benefits “encourages employers to offer ‘Cadillac plans,’ or overly generous health care plans that promote the overuse of health care services and drive up health care costs,” the authors of the paper write.

The authors write that Congress could address that concern by capping the exclusion based on the value of health insurance policy or the income level of the employee eligible for the exclusion; capping the exclusion based on both the value of the health insurance policy and income level; or converting the employer-provided health insurance exclusion to an individual tax deduction or credit.

The government could, for example, limit the value of the group health coverage excluded from an employee’s gross income “to the dollar amount that would initially be calculated as an amount equal to the actuarial value of the Federal Employee Health Benefit Program standard option,” the authors of the paper write.

The government also could modify a special deduction that Blue Cross and Blue Shield plans get; put new limits on HSA contributions; change or repeal the FSA and HRA exclusions; or limit the “qualified medical expense” definition by, for example, excluding nonprescription drugs, the authors of the paper write.

A copy of the paper is available here.

Comments are due May 26 and should be sent to Health_Reform@finance-dem.senate.gov.