Sick and Getting Sicker

Rising health-care costs are pushing entrepreneurs to the limit. Some are changing coverage. Some are eliminating coverage. And some are deciding not to go into business at all.

By SIMONA COVEL

For entrepreneurs trying to start or run a business, the obstacles are huge. But few loom as large as one: health care.

For years, small businesses have griped about the burden of rising health-care costs and warned that the situation was near a crisis point. Well, it’s fair to say that the crisis point is here.

At some businesses, in fact, health care is the highest expense after salaries—with devastating consequences. Owners must skimp on vital investments like marketing and research. Some can’t hire the people they want because top candidates demand premium coverage. Or they end up understaffed because of the high cost of insurance—and lose potential clients as a result.

At the same time, to keep costs in check, countless companies are slashing coverage or dropping it entirely. Some are turning to freelancers or offshore workers instead of hiring full-timers and locals. And some would-be entrepreneurs find insurance so onerous that they’re not even starting a business in the first place.

What’s more, it isn’t just individual companies at risk. It’s the entire economy. Historically, small businesses have boosted recoveries significantly. Since they can’t simply make mass layoffs and hunker down, as so many big companies do, they must take risks to survive—like investing in innovative ideas and hiring more workers to implement them. But stratospheric health-care costs threaten to damp that enthusiasm and choke off investment.

“We have got to figure out how to get an affordable [insurance] package to people who would be entrepreneurs,” says Carl Schramm, president and chief executive of the Ewing Marion Kauffman Foundation, a pro-entrepreneurship organization in Kansas City, Mo. If such a package existed, he adds, “the chances of a more robust recovery at the hands of entrepreneurs would decidedly be higher.”

Mr. Schramm believes that Washington has had few constructive ideas so far, as most of the focus and the funds have been directed to big business, particularly the bailouts of banks and auto makers.

“You don’t have a general chatter right now on the importance of entrepreneurs in government circles,” he says. “There’s a decided emphasis on protecting the framework of big business,” even though small companies historically create the most U.S. jobs.

What Will Congress Do?

It’s not clear what the looming health-care fight in Washington holds for small companies. President Obama has implied that any kind of employer mandate to pay for coverage would exclude small businesses. That’s a relief to many owners—but it still leaves enormous numbers of people without coverage. A recent study from the National Federation of Independent Business, a Washington, D.C., trade group, found that 26 million of the nearly 46 million uninsured Americans are small-business owners, employees or their dependents.

Some members of Congress, mindful that small businesses employ the majority of Americans and lots of their constituents, are pushing for programs that will let small businesses join cooperatives that could use their size to spread risk and negotiate costs down, like bigger businesses. A House-sponsored bill would offer a tax credit to business that join the cooperatives. A similar plan from the Senate also allows companies to band together to spread risk and offers tax credits to help small businesses pay.

Several small-business lobbies support the plans. Though the proposed bills don’t address the biggest problem in the health-care system, the dramatically rising cost of care, the general consensus among a wide swath of lobbying groups and small-business organizations is that they offer a starting point to level the playing field.

No Local Hires

Still, the proposals are just one element in the larger debate about health-care coverage and could morph as lawmakers draw battle lines over contentious issues like a public health-insurance system.

But, for some small businesses, help can’t come soon enough. Consider Nimbus Software of Atlanta. After being battered by the recession, business at the marketing-software company is finally looking up. Nimbus has a six-week backlog of work—too much for the four full-time employees to handle.

But rather than hire more full-time staff, chief executive and co-founder Jason Brewster plans to use developers in the Eastern European nation of Belarus, and maybe additional contractors in the U.S. “If health care wasn’t a line item we needed to worry about, I would probably hire directly,” he says. “I’d have better control” over the staff and their work. But with the company paying about $1,000 per month for the average family plan for each employee, the cost adds up to virtually an extra minimum-wage worker for each full-time staff member.

Mr. Brewster knows how important health insurance is—he has four young children, including one with autism. When the company was founded in 2000, coverage cost about 70% less, he says, and employee co-pays were lower. But now, he says, Nimbus can’t afford to pay for new employees’ health-care coverage—even though the staff is mostly young and fit. On the most recent annual report on his employees’ usage, Mr. Brewster says, not a single one met the deductible.

The problem, he says, is size. Big companies have enough employees to self-insure—their employees are pooled together for purposes of determining risk, and rates in large part are based on workers’ actual health-care use. But Nimbus is too small for that type of plan, so employees’ good health has no impact on rates. Instead, small businesses like Nimbus have little bargaining power and are at the mercy of their insurance company, which assumes the risk. And in recent years, insurers have raised small business rates furiously. Employers have increasingly passed some of those costs on to their staffs.

So, for now, more full-time staff is out of the question—and potential local workers are losing out on jobs. Using offshore workers can be risky, Mr. Brewster acknowledges. Monitoring their work is more difficult, for instance. But the risks are far outweighed by the cost savings, he says.

Tough Choices

Across the country in Oregon, business owner Paul Ward has discovered the many compromises it takes to set up health coverage for a small business. The founder of Web- and multimedia-design company Media Mechanic LLC, based in Tualatin, Ore., outside Portland, is in the process of trying to replace contract workers with three new full-time staffers. He wants local employees who know the market and can help establish the young business. But competition for high-tech workers is fierce, and the best workers demand benefits, Mr. Ward says.

The cheapest plan he found will cost about $400 per employee in premiums, assuming the employees are young and healthy. Covering employees’ spouses and children would run as much as $800 per employee per month—if the company covers 100% of employee premiums and 50% of the spouses’ premiums. That’s simply too much to handle, Mr. Ward says, so he plans not to offer family coverage, and he’ll likely cover only half or two-thirds of his employees’ premiums. That’s a tough pill for Mr. Ward to swallow; in Michigan, where he grew up, workers’ rights reigned supreme, and he believes employers should offer the fullest possible coverage for their staffs.

Even with those concessions, health insurance is likely to come in as the company’s No. 2 expense—second only to wages, and edging out rent and utilities. “It’s less money I can spend on marketing, and less money I can spend on investment in the company,” Mr. Ward says.

M2 Health Care Consulting hasn’t been able to find an affordable plan—and that’s having serious consequences for the health-policy consulting firm. Since the business was created in 2005, its president, Brenda Gleason, has relied on local contract workers—currently, five of them. But her accountant has advised her that it’s time to make those staff members full-time employees, partially for the tax benefits. Ms. Gleason would also prefer the dedication of full-time workers.

The problem? The Washington, D.C., company just can’t afford to cover employees—despite a growth spurt that has left it desperate for additional staff. Only health savings accounts with catastrophic coverage seemed affordable, but they didn’t provide enough coverage to make Ms. Gleason comfortable. Traditional plans with more-comprehensive coverage and lower deductibles came in between $750 and $950 per month per employee, and that’s just not affordable, Ms. Gleason says. (For her part, Ms. Gleason is currently covered by the domestic-policy plan that her partner’s employer offers.)

Since prospective employees increasingly expect coverage, M2 is at a disadvantage. When Ms. Gleason recently offered spots to two candidates, both turned her down, citing at least in part the lack of coverage. It’s a particular problem now, she says, because she’s looking for workers with three to five years of professional experience; often, they’re too old to be on their parents’ plans but too young to have a spouse or partner with coverage.

Meanwhile, the delays in hiring caused M2 to lose business recently. A big potential client took its business elsewhere because M2 didn’t have enough staff to handle the project. “If I can’t hire more people, I can never win that contract,” Ms. Gleason says. “I don’t want to think I’m putting the brakes on the business.”

Abandoning Dreams

In some cases, when a young small business tries to buy insurance, the expenses are enough to stifle it before it gets off the ground. That was the case for Louise Hardaway, who decided to start her own business when her employer, a home-care company focused on bleeding disorders like hemophilia, closed in the spring of last year. She and a former co-worker had a list of clients near their home town of Nashville, Tenn., and thought they’d be able to build a small but stable enterprise. “I really had always wanted to start my own company,” Ms. Hardaway says.

Both Ms. Hardaway and her partner were married to spouses who are self-employed, so they needed to find coverage. Their families had been covered by their previous employer. Ms. Hardaway called an insurance broker. She knew that as a small start-up, her company, Factor 4 Life, would be at a disadvantage, and she expected to pay a couple of thousand dollars a month. After a few days, the broker called with a quote: $12,800 per month to cover five people—Ms. Hardaway and her husband, her business partner, and her partner’s spouse and child. She knew being over 50 might be a liability, and her husband had a bout with kidney stones that may have affected the quote. Nevertheless, they’re in “relatively good health,” she says, with no chronic diseases. The insurer would say only that the quote was based on information Ms. Hardaway provided.

Determined to find coverage, Ms. Hardaway decided to check with several other insurance companies. But because the first company deemed the group to be “max rated”—falling into a high-risk category—the quest was essentially doomed. Insurers share the information, her broker told her, and all of the other quotes would be similar. “You have to cover a lot of healthy lives to make [insurance] profitable,” Ms. Hardaway says. And that’s “an inherent problem” for small businesses.

Ms. Hardaway’s broker suggested health savings accounts, which may offer lower premiums but generally come with a high deductible. But she balked when she saw the fine print: Pre-existing conditions would be covered only for a certain period. She was worried in particular about some polyps that had shown up on a past colonoscopy. If she developed cancer in the future, she was afraid the company could say it was a pre-existing condition.

Factor 4 Life lasted about six months. Last fall—one month before their coverage from their existing employer was set to expire—Ms. Hardaway and her business partner shuttered their nascent business and started working for another company.

The two partners lost thousands of dollars in attorneys’ fees and business filing fees to set up the now-defunct company—not to mention all the time involved. But now they have employer-sponsored health insurance; Ms. Hardaway is paying about $1,000 per month in premiums for herself and her husband. Her new employer “is letting us be self-directed, they know we have a history of success.”

“But it’s not the same” as the dream of being on her own, she says.

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Healthcare Overhaul Could Limit Tax Breaks on Benefits

Boston Globe –

July 6: Washington – For the secretaries and environmental engineers, game wardens and van drivers who work for the state of New Hampshire, surgery is free, even at Boston’s top teaching hospitals if it’s necessary. So are MRIs, CT scans, and X-rays.

Pregnant women pay nothing for prenatal care; alcoholics aren’t billed for short stints in rehab. Seeing a therapist costs just $10, as many as 20 visits a year, and prescription drugs top out at $30 for a three-month mail-order supply. New Hampshire state employees get $450 annually toward gym memberships, if they go regularly, or $200 toward their own treadmill and there’s a $150 annual reimbursement for yoga classes, diabetes clinics, and nutritional counseling

They have what some call “gold-plated” or “Cadillac” health insurance. For just $60 a month, state workers’ families get coverage worth $20,400 a year, about 62 percent more than the plan the average American family gets through work. And because the federal government excludes health benefits from taxation, they pay no income taxes on any of it, But that may be about to change.

Desperate to find ways to pay for a healthcare overhaul that could cost more than $1 trillion over the next decade, Congress has begun to look longingly at limiting the tax exclusion on employer-sponsored health benefits, which cost the federal government an estimated $225 billion in foregone tax revenue in 2008.

Ending the tax break entirely is out of the question politically, but next week the Senate Finance Committee is likely to propose limiting it in some fashion – by requiring people with the most expensive insurance, or the highest incomes, or both, to pay some taxes on their health benefits.

President Obama, who is urging Congress to send him a bill this year, dislikes the idea but has not ruled it out. Opponents of the tax exclusion want to get rid of it because they say it is grossly unfair it gives the biggest tax break to those with the highest salaries and the best benefits, while the millions of Americans who don’t get insurance through their employer get little or no help at all.

“It provides enormous tax breaks to those who need them least, and little or nothing for millions of working families who really need help,” said Robert E. Moffit, director of the conservative Heritage Foundation’s Center for Health Policy. “If you are going to give a tax break, you should give it to taxpayers evenly.”

But Diana Lacey, the chair of collective bargaining for the New Hampshire state employees’ union, says it’s wrong to call their plan “Cadillac” coverage, or to encourage employers to offer workers skimpy coverage. A health overhaul, she said, should “bring people up to the standard we have healthcare that is responsible and affordable and you don’t have to go bankrupt to get the treatment you need.”

Defending the status quo is an unlikely set of allies executives of major corporations, who like being able to use tax-free health benefits to attract and retain employees; labor union leaders, who argue their members have sacrificed higher wages over the years to gain and retain good coverage; and some liberals who believe all Americans should have a generous health plan.

The Laborers’ International Union of North America, which represents some 508,000 construction workers and government employees whose family plans can be worth $18,000 or more in the most expensive healthcare markets, has already begun running ads targeting senators who want to limit the tax exclusion.

“If they think they’re protesting in Iran, if they pass a healthcare bill that’s going to tax my members’ benefits, they ain’t seen nothing yet,” said Terry O’Sullivan, the union’s president.

The Laborers’ International and other unions argue that tax policy should support workers who put a high value on good health benefits, so they don’t face bankruptcy or need public assistance when they get sick. The New Hampshire state employees’ union estimates that its members earn 20 percent less than other public sector workers in the state after repeatedly giving up raises in contract negotiations to keep their the generous benefits.

It was an arrangement that for years also suited the thrifty state of New Hampshire it could offer its workers a valuable benefit at a discount. “It was cheaper for them to do that than to pay us more money,” Lacey said. She said the union, now involved in protracted negotiations with the state, would probably renegotiate its contract if the tax exclusion were limited.

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No Healthcare? Expect a Requirement to Get It

Associated Press Online –

June 22: Don’t have health insurance? Don’t want to pay for it? Too bad. It’s looking like President Barack Obama and the Democratic-controlled Congress are going to require you to pick up the bill.

In Washington-speak, it’s called an individual mandate — or a requirement that people who don’t already have health insurance to purchase it, much like most states require drivers to have automobile insurance.

Obama long has been wary of the idea, arguing that people cannot be required to buy coverage if they can’t afford it. His plan during the presidential primary didn’t require all adults to have coverage, only children. He and then-rival Hillary Rodham Clinton, who backed a universal requirement, sparred repeatedly over the issue.

Now in the White House, Obama has set in motion steps toward his broad goal of making health care more affordable, improving quality of care and expanding coverage. Says Obama: “We are not a nation that accepts nearly 46 million uninsured men, women and children.”

He largely has left it to the House and Senate to work it out. But in recent weeks, Congress signaled that legislation overhauling health care was all but certain to require that people have insurance. Of course, details about how to implement such a mandate must be worked out — and there are many — but the overall concept increasingly seems on track to be included in any sweeping health care overhaul that makes its way to Obama’s desk.

The president’s support for the requirement is recent — and conditional. In a letter in early June, he told key Senate Democrats writing legislation that he was willing to consider their ideas for “shared responsibility,” requiring people to have insurance with employers sharing in the cost. “But,” he added, “I believe if we are going to make people responsible for owning health insurance, we must make health care affordable.”

He went a smidgen further last week. “I am confident in our ability to give people the ability to get insurance,” he told doctors. Thus, he said: “I am open to a system where every American bears responsibility for owning health insurance, so long as we provide a hardship waiver for those who still can’t afford it.”

Obama also indicated that if he were giving a little, insurance companies eager for new customers must as well, and called on them to stop denying coverage based on pre-existing conditions. Said Obama: “The days of cherry-picking who to cover and who to deny — those days are over.”

Even before the president took office in January, the insurance industry, which killed former President Bill Clinton’s health care overhaul, indicated it was willing to accept that trade-off, making a mandate all the more likely.

Democrats have opposed such a mandate in previous years, fearing it would disadvantage the poor. In fact, it was Republicans, including 1996 presidential nominee and former Sen. Bob Dole, who pushed the idea in the 1990s.

These days, it’s hard to find many opposed to a requirement. Insurers like it: A mandate means a ready pool of new customers. Businesses back it: They say employers alone shouldn’t shoulder the responsibility to pay for coverage. Hospitals cheer such a provision: They’re tired of absorbing the costs of the uninsured seeking medical attention. Doctors support it: They want to stop providing services for free. And advocates for the poor are conditionally favorable: They want adequate subsidies and so-called hardship waivers.

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More Small Firms Drop Health Care

By DANA MATTIOLI

Accelerating health-care premiums and sharp revenue shortfalls due to the recession are forcing some small companies to choose between dropping health insurance or laying off workers — or staying in business at all.

Sheryl Weldon, owner of Commerce Welding, eliminated health-care benefits to employees in December after five years of cost increases.
Sheryl Weldon, owner of Commerce Welding & Manufacturing Co., saw health-insurance payments increase to more than $800 monthly per employee from about $200 five years ago. With monthly revenue down 10% since December, Ms. Weldon stopped providing health coverage to employees, including one being treated for prostate cancer, for the first time in the 64-year-history of the Dallas sheet-metal company.

Ms. Weldon and several of her 14 employees are going uninsured and the third-generation business owner is struggling with the emotional toll of the decision.

“I have a terrible time handling that I can’t give them that coverage,” says Ms. Weldon, 52 years old. “How do you expect someone to be at their job everyday and perform if they can’t be healthy?”

As the Obama administration wrestles with broader questions of health-care overhaul, tough economic times are forcing more businesses to grapple with stressful questions about discontinuing coverage. Health-insurance premiums for single workers rose 74% for small businesses from 2001 to 2008, the latest year data are available, according to nonprofit research group Kaiser Family Foundation.

About 10% of small businesses are considering eliminating coverage over the next year, up from 3% in 2005, according to a recent survey by National Small Business Association.

One Company’s Tough Decision

Commerce Welding and Manufacturing Co., one of many small companies faced with high health insurance premiums and reduced revenue, is joining the crowd cutting coverage.

That follows earlier declines in coverage, with just 38% of small businesses providing health insurance last year compared to 61% in 1993, according to the trade group. In 2007, 41% offered coverage. A Hewitt Associates survey found that 19% of all companies plan to stop providing health-care benefits in the next three to five years.

Assurant Health, a national health-insurance provider, has recently seen more small businesses canceling coverage. Scott Krienke, senior vice president of product lines, says premiums typically increase 8% to 16% yearly for small businesses, with the smallest firms particularly at risk for large rate increases.

In March, after losing a large client that accounted for more than 50% of revenue, Kelly Reeves canceled health insurance for her three employees. Ms. Reeves, president of seven-year-old public-relations firm KLR Communications, says she had to choose between that and laying off an employee.

Ms. Reeves says turnover is a concern even in this slack job market, but she has told her employees she understands if they leave for a job with medical benefits. Should business pick up, she plans to reinstate health insurance but provide less expensive coverage.

“You want to attract good talent and benefits are important for that,” says Ms. Reeves.

Even small businesses that continue to provide benefits say the question of dropping medical insurance is one of the most difficult they face.

Shanahan Sound & Electronics Inc., a Lowell, Mass.-based sound- and video-design firm, has seen a 50% decrease in monthly revenue since last year. Health-insurance costs increased by 14% this year to approximately $7,000 per month. Catherine Shanahan, president of the 16-employee firm, refuses to cancel the plan. “I really believe it would be the worst thing in the world I can do for morale,” she says.

Karen McLeese, vice president of employee benefit regulatory affairs at business services firm CBIZ, has been steering companies that consider dropping insurance to less costly high-deductible plans and cost sharing.

“In today’s environment, health insurance is extremely costly and to shift that burden to individual employees when raises and bonuses are trimmed really makes it a double whammy,” says Dennis J. Ceru, professor of entrepreneurship at the Babson College Graduate School of Business near Boston.

Many of the employees losing insurance are priced out of private plans. Mr. Ceru says the cost for a family on an private plan can exceed $20,000 a year.
Alternatives to Eliminating Health Insurance

* Consider Cost Sharing: Companies that are paying 100% of employee health care may want to switch to a cost sharing model where employees help defray the cost. Switching from a 100% health plan to a 50/50 split can significantly free up funds.
* Increase Charges: Dominic Morelli, an employee benefits broker and consultant, says many companies are increasing employee co-payments and deductibles.
* Shop Around: If your current provider is charging you the maximum renewal rate each year, shop around for a new provider. A health insurance broker can help manage your search, or you can search for better rates online.
* Manage Your Prescription Drug Plan: Many employers don’t realize the amount of money they can save by requiring employees to use generic versions of prescription drugs, says Tim Stentiford of Hewitt Associates.
* Consider Wellness Plans: Fostering healthy eating and exercising habits can save employers insurance money by creating a healthier workforce.

Dennis Morgan, a driver at Commerce who’s being treated for prostate cancer, worries about how he will pay for surgery should he need it. The 60-year-old’s $500-a-week salary makes him eligible for a program at his hospital where he can receive prescriptions at a low cost and pay between $5 and $10 for doctors’ visits. But he would be required to pay a percentage of the cost of any medical procedure.

Mr. Morgan has looked into private health insurance but says he can’t afford it. At the same time, he understands Ms. Weldon’s decision to eliminate coverage.

“We needed to cut health care,” says Mr. Morgan. “It’s the only thing left to cut.”

Still, the decision rarely sits easy with those making it. “If I think about it, I can’t sleep,” says Ms. Weldon, who says that her father and grandfather had always covered 100% of health-insurance expenses.

Dana Korey, president of San Diego organizing company Away With Clutter, eliminated health insurance for her 15 employees in January.

“It was incredibly painful, these people are like family to me and I felt like I let them down,” says Ms. Korey.

Amid the recession, many of her clients could no longer justify organizing jobs, which typically range between $3,000 and $7,000. Now Ms. Korey is changing her business strategy and creating a DVD on organizing. She is using the savings from canceling health insurance, roughly $5,500 monthly, to fund the venture.

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Employers to Make Deeper Cuts in 2010 Health Coverage

As companies seek to reduce costs, more will push workers into consumer directed health plans.

By Martha Lynn Craver

May 21, 2009

Look for employers to cut more deeply than ever into health care coverage for their workers in 2010. Companies are getting walloped by higher than expected costs just when they can least afford it. Employers had figured on a 6% hike in health care this year, but it now looks as if the increase will be closer to 7.5%. The spike is due to employees making more trips to the doctor and dentist and undergoing more exams, tests and treatment, a common occurrence in a recession. It’s driven by stress related illnesses and by workers worried that they’d better race to use their benefits while they still have them.

Employers say that as a result of economic conditions, they will make more cost saving changes than usual to their health plans. In a recent survey by Mercer, firms said they are planning on making changes to slow the increase in health costs to an average of 5.2% in 2010.

A popular method for cutting costs will be to embrace consumer directed health plans. When CDHPs were introduced in 2002, employers were cautious about adopting the plans, which combine high deductible insurance with tax advantaged savings accounts, either a health reimbursement account (HRA) or a health savings account (HSA). “But employers are getting more comfortable with these plans, and our survey indicates they are planning the biggest increase we’ve seen to date in their adoption,” says Beth Umland of Mercer.

About 14% of small employers and 25% of large (500-plus workers) ones now offer CDHPs. Mercer found that the percentage of employers offering CDHPs could double in 2010. About 60% of employers with CDHPs make a contribution to their workers’ accounts. The average employer contribution is $640, while the average deductible is about $2100.

CDHPs are significantly cheaper than PPOs (preferred provider plans). The average cost per worker of a CDHP is about $6000 versus $7800 for a PPO. “These cost savings are pushing some employers to adopt CDHPs faster than they would otherwise,” says Umland.

Small employers are most likely to adopt CDHPs as a total replacement for PPOs, while larger employers usually offer them as one of several options. “But the direction, even among large firms, is toward total replacement,” Umland says. Large employers are luring workers into choosing the CDHP option with premiums that are much lower than those of their other plans. In 2007, 7% of large firms offered only CDHPs, and in 2008, the percentage was 12%.

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Taxing Those With Insurance to Pay for Those Without

New York Times
May 08, 2009

It is an alluring way to pay for the ambitious plan to expand health coverage to the nearly 50 million people who are now uninsured. Simply put, the government would tax the people who already have the most expensive health benefits, as provided by their employers.

By one Congressional estimate, taxing this “Cadillac coverage,” as some call it, could yield $100 billion in revenue over five years. No wonder Senator Max Baucus, the Montana Democrat who is a leader of the health reform effort, seems keen on the idea. And although the candidate Barack Obama criticized the notion last year when Senator John McCain promoted it, the concept now has some support in his administration as part of an overhaul of the health care system.

“There aren’t that many pots of gold to pay for health reform,” said Jonathan Oberlander, a health policy expert at the University of North Carolina.

But Mr. Oberlander and some other experts say Congress may have a difficult time devising a new tax on health benefits that does not threaten to do more harm than good.

If the plan is not designed carefully, they say, the additional taxes could affect many workers who are far from affluent and put the cost of adequate coverage further beyond the reach of many Americans. Some critics also warn that the taxes could undermine the employer-based coverage that is the bedrock of the nation’s health insurance system.

The details have not yet been worked out. But critics say a tax could add to the burden of many employees, who already pay a hefty portion of their own insurance premiums and have additional out-of-pocket costs in the form of deductibles and annual co-payments.
And many people have high-priced insurance that is expensive for reasons unrelated to the quality of the coverage because they live in a high-cost city or work for a small business with old or sick employees.

“We too often equate expensive health insurance with generous health insurance, and they’re not the same,” Mr. Oberlander said. “It’s not clear that you are going after ‘Cadillac’ health plans at all.”

Right now, the amount that an employer spends on a worker’s health insurance is not taxed as income, and employees can pay their share of premiums with before-tax earnings. The proposals being debated in Congress would start considering some part of the value of the health benefit as income and tax it accordingly.

Representative Charles B. Rangel, the New York Democrat who is chairman of the House Ways and Means Committee, which presides over tax legislation, made clear on Wednesday that he opposed a change in the tax treatment of health benefits.

And employer groups and labor officials have also come out against the idea. They say taxing benefits could endanger the current system of employer-based coverage, which now is responsible for insuring nearly two-thirds of Americans who are under 65 years old and have coverage.

“If we began to tax employee benefits, there would be mutiny at the gate,” said J. Randall MacDonald, an I.B.M. executive who is chairman of the HR Policy Association, which represents corporate human resource professionals. “It’s just counterintuitive to the problem we’re trying to solve.”

The challenge for Congress, aside from the political battles already stirring, is whether policy makers can come up with a proposal that addresses opponents’ concerns, by limiting the tax to the wealthy, or otherwise fine-tuning it.

Proponents argue that the revenue could be raised by taxing only the most expensive policies for those people who can afford the few hundred or thousand dollars at stake — money they say is essential to government’s ability to provide basic coverage to more people.

“We need the money,” said Len Nichols, a health economist at the New America Foundation, which supports overhauling the current insurance system to give more people access.

Some supporters of these plans say the current system gives an advantage to people who get coverage from their employer and to people with high incomes.

“There is a huge consensus that this is inequitable and unfair tax treatment,” said Robert E. Moffitt, a policy analyst with the Heritage Foundation, which has long supported changing the tax laws and contends this is an area that might have significant bipartisan support.

What is more, some economists and policy analysts say the current system encourages overly generous coverage, which they say helps drive up the cost of medical care by keeping patients insulated from the true costs. “One of the arguments for doing it is trying to achieve higher value through the health care system,” said Katherine Baicker, a health economist at the Harvard School of Public Health.

But the political opposition remains fierce.

Union officials, for example, say that the proposed policy could translate into higher taxes for some of its members, many of whose contracts call for generous health benefits. “Capping the tax exclusion would undermine the place where most Americans now get their coverage, before we have built a proven effective, sustainable alternative to employer-based plans,” said Gerald M. Shea, an official with the A.F.L.-C.I.O. in recent testimony before Congress.

And there is little doubt that more expensive coverage does not always mean more generous coverage. Small companies, for example, typically pay more for the same benefits than large employers do. And some companies pay more in premiums because more of their employees are older or sicker.

Moreover, the cost of insurance varies in different parts of the country, so that someone with the same plan in New York or California will pay more than someone in North Dakota.

Congress may be able to balance these issues. But the problem, some policy analysts say, is that if a grand compromise ends up too narrowly defining the group of people who will end up paying the new tax, the amount of money raised might not be enough to make a difference in paying for health reform.

“I think it’s got some traction, but what happens when push comes to shove?” asked Paul Fronstin, an analyst for the Employee Benefit Research Institute, who recently completed a lengthy analysis of changing tax policy.

“If it’s not going to buy them much, why do it?” he asked.

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