Democrat looking at taxing health benefit

Tue Mar 3, 2009 12:36pm EST

By Donna Smith

WASHINGTON (Reuters) - A senior Senate Democrat said Tuesday he would consider taxing U.S. workers on their employer-sponsored health insurance to help pay for extending coverage to millions of uninsured Americans.

"I think that tax provision should be on the table," said Senate Finance Committee Chairman Max Baucus, who will play a major role in writing the legislation to revamp the U.S. healthcare system as promised by President Barack Obama.

"It's too aggressive. It skews the system," he said of the tax benefit.

Most U.S. workers with health insurance get it through their employers -- 160 million of them -- although recent surveys have shown that number is declining as businesses try to cope with the rapidly rising cost of insurance.

The employer-provided benefit is not taxed as income and critics say the tax break encourages workers to seek a more generous benefit package than they might want if it was taxed.

Eliminating the tax break was part of the health overhaul package proposed by Republican Senator John McCain in his unsuccessful presidential bid against Obama.

But taxing health insurance benefits as income will likely meet with strong resistance from labor unions who negotiate benefit packages on behalf of their members.

Baucus told reporters he does not favor eliminating the tax break but is looking at limiting it. The move would provide a much-needed source of revenue to help finance a broad overhaul that lawmakers hope will contain soaring costs and cover an estimated 46 million uninsured Americans.

In the budget he submitted to Congress last week, Obama proposed setting aside $634 billion for his promised health care overhaul. He proposed raising taxes on the wealthiest Americans to help pay for it.

(Editing by Maggie Fox and John O'Callaghan)

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