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Fri Jul 8, 2011 1:26pm EDT (Reuters) - U.S. deficit-reduction negotiators are looking at imposing new limits on existing tax breaks for employer-provided health insurance, a senior Democrat in the U.S. House of Representatives said Friday.

"I think limiting the deduction for the higher income brackets is something that is on the table" in the negotiations, Rep. Sandy Levin told Reuters. Levin is the senior Democrat on the tax-writing House Ways and Means Committee.

President Barack Obama and Republican and Democratic negotiators in Congress are trying to craft a deal to cut $4 trillion from budget deficits over 10 years to give lawmakers political cover to raise the government's debt ceiling of $14.3 trillion.

Health experts and economists have long viewed reining in the health care tax exclusion as a potential means of controlling soaring U.S. health care costs. Advocates believe individuals would respond to the resulting higher costs by pursuing less expensive insurance plans.

Analysts would expect any change in the tax exclusion to take effect gradually - probably beginning after the 2012 election, with a cap set below the expected rate of rising health care costs.

A cap could be politically feasible because it would not register as a tax increase, the initial pain would be minimal and those affected would be higher income employees rather than the elderly or the poor, analysts say.

"The general consensus of non-elected people who pay attention to this is that that's really the way to go. You've got to ease yourself into something like this," said Joseph Antos, a health care policy expert at the conservative American Enterprise Institute.

Levin said that removing the break too quickly could upset last year's landmark health reform law.

"Those provisions are essential to health care reform. So you have to be very, very careful," he said.

(Reporting by Richard Cowan and David Morgan; Editing by Vicki Allen)

© 2010 Thomson Reuters. Click for Restrictions

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