Congress has begun to focus in on reforms for the nation's health care tax policy - a move that could impact hundreds of billions of dollars a year in cherished tax breaks for individuals and employers.That worm can spilled open on Capitol Hill as the Senate Finance Committee launched hearings into the single largest tax expenditure in the tax code - the $200 billion a year in income and payroll tax incentives paid to encourage employers to offer health insurance coverage to their workers.

With 45 million Americans now without any health insurance at all, and health costs continuing to rise at three times the overall rate of inflation, some observers have suggested that the tax subsidies themselves are a significant part of the problem.

Just last year, the President's Advisory Panel on Tax Reform recommended that new limits should be placed on the tax exclusion for employer-paid health insurance, while other top Washington policy makers have gone further.

Glenn Hubbard, former chairman of the President's Council of Economic Advisers, called for eliminating the employer exclusion altogether and letting the market come up with cost-effective ways to supply health insurance to the public.

During the Senate hearings in Washington, opposition to tax write-offs for employer-paid health benefits surfaced from both ends of the political spectrum.

Testifying on behalf of the Urban Institute's Tax Policy Center, senior fellow Leonard Burman suggested that rather than lowering costs and improving access to health care, the massive tax subsidies for employer-provided health insurance are part of the problem.

"The subsidies encourage people to get insurance at work, stifling the individual non-group market, and they encourage employers to provide overly generous insurance since the cost is subsidized," Burman told Congress. "What's more, the subsidy is upside down - aiding mostly the high-income families that would probably purchase insurance under any scenario, and providing little aid to those of modest means."

For his part, Finance Committee chair Chuck Grassley, R-Iowa, also raised concerns about the effectiveness of the $200 billion in tax subsidies that Congress has authorized to encourage employer-sponsored health insurance. "Are we getting our money's worth?" he asked the committee.

Grassley was particularly skeptical of proposals to fix the nation's health care system by creating even more tax subsidies. "Too often here in Washington, people try to solve problems by throwing money at them," he said. "Before we add more tax subsidies, we first should look to see if we can make the incentives we have today work better."

Grassley's skepticism in this area raises doubts about the prospects for Senate passage of the centerpiece of the Bush administration's health reform agenda this year - a major sweetening of existing tax incentives for individuals with health savings accounts.

Sen. Max Baucus, D-Mont., the Finance Committee's ranking Democrat, made it clear that he would oppose further liberalization of health savings accounts, calling the president's proposal a step that would "move health tax incentives in the wrong direction."

Rather than "bring us together, health savings accounts would make our insurance market more fragmented, less cohesive," Baucus said.

For "better or worse, the employer-based system is what we've got ... and the widespread use of health savings accounts will only weaken it," he maintained.

Don't cut our subsidies!

Representatives of the business community sang a different tune at the congressional hearings, however.

Testifying on behalf of the Business Roundtable, Deere & Co. chief executive Robert W. Lane cautioned against slashing tax incentives for employer-provided health benefits, and urged Congress to instead support the Bush administration's push for more effective health savings accounts.

"Soaring health care costs are harmful to our nation's economic health and our ability to be globally competitive," he testified. "Health savings accounts have the promise of putting health care consumers back in the driver's seat - a change that could be transformational for the American health care system."

Significantly, however, Lane warned that without action by Congress, health savings accounts would not deliver fully on this promise.

Among other things, he said that the Business Roundtable supports lifting the current contribution limits for health savings accounts; permitting employers to vary contribution amounts to employees' HSAs for low-income or chronically ill employees; and allowing a limited carryforward of up to $500 in a flexible savings account or a rollover into an HSA.

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