Medicare could fund health care plan Clinton would tap into payroll taxes

WASHINGTON — WASHINGTON -- President Clinton wants to divert an estimated $40 billion a year from the federal Medicare trust fund in a move that would reduce federal payments for health care costs of the elderly but provide a financial foundation for his national health care plan, administration officials said.

Mr. Clinton met yesterday with top advisers, and aides said a final decision on the potentially explosive issue could come this week. "It's a realization that we cannot continue to pay Medicare benefits at the rate we have been," said one senior presidential adviser.


Under the new plan, the patient's share of the bill would be higher than the current 20 percent.

While other financing options still are being discussed, Mr. Clinton's personal support for tapping into payroll taxes used for the Medicare trust fund has already caused controversy within his administration.


"It's a political loser," said one senior official who has studied the health care proposals expected to be announced this month by the president.

While the financing proposal would fulfill Mr. Clinton's pledge of health care coverage for all without new taxes, reducing federal payments for the nation's 35 million elderly would likely trigger an uproar among retired citizens and their supporters in Congress.

Using a portion of the Medicare payroll tax would make more than $200 billion available for the plan over the next five years -- the largest single source of revenue for Mr. Clinton's ambitious -- health care package.

"You would have to change the law -- no question about it," said one White House adviser of the payroll tax proposal. Under current law, money that workers and employers pay into the Social Security-Medicare fund can be spent only on the health needs of Americans 65 and over and the disabled.

It was another Democratic president, Lyndon B. Johnson, who battled for new payroll taxes to finance Medicare coverage.

Congress has balked at raising income taxes, and Mr. Clinton has been unable to make major reductions in such big-budget items as defense. While the payroll tax is considered regressive because the poor and middle-income earners pay relatively more than the wealthy, senior officials say Mr. Clinton believes diversion of existing payroll taxes has the best chance for congressional approval.