Just as President Barack Obama got his health care reform initiative started, a key point of controversy during his campaign against Sen. John McCain reared its ugly head–the notion that employer-paid coverage should no longer be tax-exempt. That's bound to create a political backlash with voters, and it might prompt wider support for a single-payer system.

Stirring the pot was a March 12 story in “The Washington Post,” headlined: “Workers' Health Benefits Eyed for Taxation” (click here for the full article).

While President Obama and Sen. McCain clashed during last fall's presidential campaign on this touchy subject, Republicans are not the only ones raising the possibility of slaying this sacred cow.

As the Post reports, “in recent weeks…Sen. Max Baucus, D-Mont., chairman of the tax-writing Finance Committee, has repeatedly advocated changing tax laws to include employer benefits…Meanwhile, 13 other senators–from both sides of the aisle–have signed on to a plan for universal coverage that includes a tax on employer-provided benefits.”

President Obama, despite dismissing the idea during the campaign as a major middle-class tax hike, “hasn't slammed the door on it,” notes the Post. In fact, White House Budget Director Peter Orszag said taxing employer benefits was among several ideas that “most firmly should remain on the table,” the Post reported.

“Some congressional Democrats say the White House has signaled that Obama would accept a tax on employer benefits as long as he didn't have to propose it himself,” the Post wrote.

While President Obama recently proposed setting aside $634 billion to help finance wider health insurance coverage, where he might raise that kind of money is far from settled. The huge, untaxed funds spent by employers to cover their workers is certainly a tempting target.

I don't think the average American worker has any idea how huge an impact this titanic shift would be for them financially. The blow might be cushioned for lower-income workers via the kind of tax credit proposed by Sen. McCain during his campaign, but the figure he floated would not come near covering the cost of most plans now being offered.

This is the conundrum faced by anyone looking to account for the 45-million-plus without health insurance in this country. How do you pay for their care without taking something away from those already covered?

Those with coverage already often lay out thousands to cover their portion of employer-paid premiums, along with co-payments, deductibles and out-of-network charges. If told they must now pay income tax on the full premium, many will not be able to pony up. In that case, they will either have to accept lesser coverage for a cheaper price, or drop the insurance altogether, which would defeat the purpose.

Despite all the tough talk reported in the Post, when push comes to shove, I cannot imagine Congress shrugging off the political firestorm this idea will set off.

When voters get wind of how much more will be coming out of their pockets to pay for existing coverage, and once confronted with the option of having to accept a much inferior plan, most will be furious. Will Congress have the guts to impose such a radical change in policy, public reaction be damned? I doubt it.

Indeed, if voters are told they will have to pay a huge tax bill to keep their health insurance coverage, might the stage not be set to simply expand the payroll deduction for Medicare and create a universal, single-payer system?

What do you folks think?

Special Reports /

Is It Time To Tax Health Insurance Benefits?

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