Balance of Power

Even if the administration managed to convince enough lawmakers that the exclusion favors higher-income workers and can contribute to accelerating health costs, the House and Senate will be challenged to develop a tax policy that doesn't capture a significant number of middle-class workers. And this is more than merely an academic exercise; queasiness over something that looks, smells and feels like a multibillion-dollar tax hike is sure to intensify the closer the politicians get to the 2010 elections.

A new study by the Robert Wood Johnson Foundation and Urban Institute outlines several ways Congress could pull off the task. One would be to place the burden on wealthier Americans, by allowing the exclusion to vary by household income. Capping the exclusion at the median premium level for those with middle and higher incomes is an idea that's already caught the fancy of the Senate Finance Committee, which is trying to keep the cost of an overhaul under $1 trillion over 10 years. Lawmakers on the panel have suggested replacing the exclusion with a tax deduction that could result in a tax cut for an estimated 35.5 million workers.

An intriguing but trickier approach might be to limit the exclusion by geographic area, to reflect the sometimes significant regional differences in salaries, rents and health care spending. The problem here, say the report authors, is that this could have the effect of subsidizing providers in less-efficient areas, by awarding a bigger exclusion to workers in those high-cost regions. At a minimum, it would force politicians to chose between two competing goals: bringing in enough additional revenue to pay for an overhaul, and creating a tax policy that has the virtue of cutting more evenly across the country.

A third option outlined in the report is to tailor the exclusion to specific health risks or individual groups of workers. This could be done by valuing health plans' benefits based on the hypothetical claims of a representative population. The report says this option might help employees of smaller firms that are struggling the most with health care costs. But it also would probably lock in current health care spending patterns and further complicate an already dizzyingly complex health insurance system.

So no easy answers to the question of how to finance an overhaul. But at least Congress has some options. And the White House swears it's agnostic on a solution. "The important thing at this point is to keep the process moving, to keep people at the table, to the keep the discussions going," Axelrod said on Sunday. "We've gotten a long way down the road and we want to finish that journey."

Update: At Monday's press briefing, White House spokesman Robert Gibbs demurred when asked whether Obama would reaffirm a campaign pledge not to raise taxes on any family making less than $250,000 -- whether by income, payroll or capital gains taxes.

"We are going to let the process work its way through," Gibbs said, saying the payroll tax question was Congress' call. Pressed whether the administration is reopening the door to taxing health benefits to pay for a health care overhaul, Gibbs replied, "I love us playing out Wimbledon without the benefit of a grass tennis court ... It's fair to say that's we watching Congress do its job."