Possible tax on medical benefits outrages labor Unions threaten Clinton with war


WASHINGTON -- For Charlie Gerhardt and other Chesapeake & Potomac Telephone Co. workers, the Clinton administration's expected proposal to tax employee health benefits threatens all they have achieved in 10 years of strikes and tough negotiations.

A benefits tax would raise income taxes for workers with generous benefit packages like the one at C&P.; The prospect appalls organized labor, which is threatening an all-out war if President Clinton doesn't drop the idea.

"It's ridiculous. You're taxing a gross necessity," says Mr. Gerhardt, 45, a cable splicer for the company in Baltimore and an officer of Communications Workers of America, which represents 8,500 C&P; workers in Maryland.

Administration officials won't comment on the benefits tax proposal, which Hillary Rodham Clinton, leader of the task force on health reform, recently told senators would be part of the president's health plan. But congressional sources familiar with it say the administration sees two advantages in it: the revenue needed to help finance health care for 35 million uninsured Americans and a tool for curbing unnecessary medical spending.

Labor leaders say members are willing to pay for health reform, which could cost $100 billion by some estimates, through payroll or sales taxes. But a benefits tax would be grossly unfair -- a "double whammy," says AFL-CIO lobbyist Robert McGlotten -- because unions have given up wage increases to obtain good health plans.

Under the administration's evolving plan for health reform, every American would be guaranteed a standardized, comprehensive package of benefits determined by the government and largely paid for by employers. That would not be taxed. But employees who negotiate benefits beyond those in that package would be taxed on them.

If, for example, your employer paid $4,000 a year for health coverage for your family and the government limited the tax exemption to $3,000, the cost of the standard package, you would pay taxes on the $1,000 difference.

The expected outcry from workers might lead the administration to shift the burden of the benefits tax to employers, who may now write off all their spending on health care. For workers, however, the impact would be similar: Employers would either pass along the cost of the tax to their employees, in the form of lower wages, or pressure them to accept a less costly benefits package.

Even so, this might be more appealing politically.

"Corporations don't vote; employees do," notes Edmund Haislmaier, senior health analyst at the Heritage Foundation.

The administration still hasn't decided what benefits Americans should have or what they should cost. But the C&P; health plan for unionized workers probably exceeds in cost what the government will recommend -- making company workers a target for benefit taxation.

It's "really a Cadillac plan," says Jann Buttiglieri, a union-appointed health care coordinator for C&P; workers. They're covered for doctors' and hospital services, plus dental, vision and mental health care. Though they pay $10 per doctor visit, they contribute nothing from their paychecks toward the cost of their benefits, leaving C&P; with the bill: about $400 a

month per worker, Mr. Gerhardt estimates.

L But C&P; workers argue they have sacrificed to get that plan.

"We have paid through lower wage increases," Ms. Buttiglieri says. The current contract calls for almost a 12 percent wage increase spread over three years, which is better than many Americans have received, yet less than what telephone workers were getting before health costs began rising so sharply in the 1980s.

Before 1987, C&P; workers received an automatic annual cost-of-living raise (pegged roughly at 80 percent of the Consumer Price Index), plus what they negotiated in their contract. They traded most of that cost-of-living increase, Mr. Gerhardt says, for health benefits.

And there were painful strikes in 1983 and 1989, triggered partly by company demands that employees pay more of the cost of their health care -- which a C&P; official says is rising 20 percent a year.

During a 23-day strike in August 1989, union members beat back a company demand that they begin contributing to the cost of their health benefits. But the CWA was forced to accept a managed-care system that limits workers' choice of doctors and hospitals.

This week, in preparation for negotiations with automobile manufacturers, the United Automobile Workers of America announced it would not accept any reduction in health benefits. About 3,600 workers from the Baltimore area are represented by the UAW.

Many unions, which support the idea of health reform as a means of achieving insurance security, say their members are willing to pay for it. But, argues Mr. McGlotten of the AFL-CIO, "It's got to be fair. It can't be fair to ask workers to forgo what they've already sacrificed for, to give to somebody else."

Labor leaders point out that an employee benefits tax would raise only part of the money needed to finance health reform. If employees paid taxes on the value of all their benefits, it could yield $70 billion. But because administration officials are contemplating taxing only those benefits that exceed a standard package, revenues more likely would fall in the range of $10 billion to $20 billion.

But raising revenues is only one goal of a benefits tax. And to many health economists, it's not nearly as important as the role such a tax could play in controlling health spending.

Economists think that most consumers are insulated from the costs of health care by employer-paid insurance plans that foot most of the bills. To make people more sensitive to the cost of health care -- and lessen the use of medical services of marginal value -- they should pay part of the price, especially if they want more benefits than are provided in the standard package, economists say.

To union officials, this punishes the wrong people.

If money is being wasted, they say, blame doctors, hospitals and insurance companies. Consumers don't look for treatment they don't need, or buy insurance for things that aren't important.

"People do not do recreational dentistry," Mr. Gerhardt insists.

The battle lines are drawn. Mr. McGlotten, who's ready to fight for a health reform plan that doesn't include a benefits tax, issued a warning to the administration if it proposes one.

"I hope you print it in bold letters that it may be much more than they can chew off," he says.

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