Tax on health benefits causing second thoughts

WASHINGTON -- Senate Democratic leaders rebelled Tuesday against a proposed tax on health insurance benefits, raising doubts about the prospects for bipartisan health-care legislation.

The discontent surfaced as the White House and Vice President Joe Biden readied an announcement for today that the nation's hospitals had agreed to give up $155 billion in future Medicare and Medicaid payments to help defray the cost of legislation President Obama wants.

The pharmaceutical industry agreed to a similar, though smaller, deal last month, giving a boost to the drive to overhaul the health-care system. Officials said the White House and Sen. Max Baucus, the chairman of the Senate Finance Committee, would try next to win concessions from the American Medical Association and perhaps other groups representing physicians.

One day after lawmakers returned from a weeklong vacation, the White House and Democratic leadership made an effort to assert control over the effort to get health insurance legislation through committees and both houses of Congress over the next five weeks. While Obama has called for a bipartisan measure, a measure written by Democrats is also a possibility, given the size of the party's majorities in the House and Senate.

White House chief of staff Rahm Emanuel met with House Democrats. In the Senate, Majority Leader Harry Reid told reporters he intends to sit down today with a small group of Republicans who have been involved in the bipartisan talks.

Nowhere were the challenges of passing legislation more evident than in the Senate. There, several Democratic officials said the party's leadership told Baucus, D-Mont., that they were unhappy with any tax on health-care benefits -- a key component of bipartisan negotiations -- and expressed fears it could lose more votes on their side of the aisle than it gained among Republicans.

"It's clearly a very difficult issue. ... You go to the public to ask them what they think and they don't like it," said Sen. Kent Conrad, D-N.D.

A compilation of four recent polls reviewed at the session showed at least 59 percent of the public opposed to taxing health care benefits to "pay for reform." The opposition went as high as 70 percent.

As a result, Conrad said, "we're looking at other options" to help finance a bill whose price tag is expected to reach $1 trillion or slightly more. He did not identify any.

Additionally, there was general sentiment among Democratic leaders that health care legislation must contain an option for the government to sell insurance in competition with private companies, according to these officials. They spoke on condition of anonymity, saying they were not authorized to disclose details of private talks.

Baucus has been engaged in delicate negotiations for weeks with a small group of Senate Republicans, hoping to draft legislation that commands widespread support.

He has long signaled that he intends to include a tax on higher-cost health care benefits that workers receive on the job. Recent talks have focused on creation of a not-for-profit cooperative to compete with insurance companies, rather than having the federal government do it directly.

At its core, legislation is designed to achieve twin purposes: expand health insurance to an estimated 50 million who now lack it, and reduce the explosive growth in health care generally.

Any bill is expected to require insurance companies to issue a policy, without the ability either to deny coverage or charge higher premiums on the basis of preexisting medical conditions.

In the House, government subsidies for private Medicare plans were on the chopping block as Democratic leaders reviewed their options to finance expanded coverage, as was a variety of other proposed trims in Medicare and Medicaid, the federal health care programs for seniors and the poor.

A long menu of possible tax increases was also in circulation, including one that would fall on the upper-income. Officials said a proposed hike in the Medicare payroll tax had lost favor in recent days. If included in the bill, it would violate Obama's campaign pledge not to raise taxes on the middle class.

Separately, numerous officials said moderate to conservative Democrats were unhappy that the legislation was likely to include an option for the government to sell insurance in direct competition with private companies.

Baucus has long championed a tax on health benefits as the best way to pay for health care while simultaneously restraining the growth of the cost in coverage in the future. Republicans, too, have been supportive, but the plan has drawn strong opposition from organized labor. House Democrats have been highly resistant, and Obama campaigned hard against it in last year's run for the White House.

After meeting with Baucus on Tuesday, a key Republican said it would be difficult to put a deal together without the benefits tax.

"The extent to which that's not on the table, it leaves a great big hole in what we're trying to do and to fill that hole is very, very difficult," said Sen. Chuck Grassley, R-Iowa.

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Associated Press writers Erica Werner and Ricardo Alonso-Zaldivar contributed to this report.