Clinton Readies for Likely Battle On Funds for Health-Care Reform

New taxes on tobacco and health benefits may be part of plan

THE battle over President Clinton's economic package has only started. But the stakes are just as high in the next arena: the overhaul of the health-care system, a task Hillary Rodham Clinton is heading up.

The job of marrying cost control with a more competitive free-market system presents many difficult administrative questions. But the crucial problem is the political difficulty of going back to Congress and the public for a second major tax increase.

President Clinton has already endorsed the concept of a "sin" tax on cigarettes to help defray the cost. Tobacco taxes are relatively popular with the public, and Mr. Clinton cites the health-care cost of smoking to the nation as a rationale.

Estimates of how much smoking contributes to annual health-care costs range from the $52 billion figure used by former Health and Human Services Secretary Louis Sullivan to the $65 billion amount calculated in a 1985 Office of Technology Assessment report.

However appropriate a cigarette tax might be, the revenues it could raise do not come near the amount necessary to reach Clinton's health-care goals. The administration has not indicated how much tax it would levy or whether it would be extended to alcohol as well. But the Congressional Budget Office calculated last month that if the tax were doubled to 48 cents per pack, the tax would raise an additional $17.9 billion over five years, or about $3.6 billion a year.

That would be real money in almost any part of the budget except the Pentagon or the health-care system. As a part of total health-care spending it amounts to less than one-half of 1 percent. And more than a quarter of all such spending is paid out of the federal budget.

Laura D'Andrea Tyson, chairwoman of the White House Council of Economic Advisers, says the Clinton administration still hopes to be able to cut health-care costs deeply enough and soon enough so that new taxes are not necessary. "We're not at a point where we have given up," she said Feb. 27 on a CNN television program.

Few outside experts, however, can see how cost savings could occur soon enough for Clinton to make progress toward his goal of expanding access to the care to the 37 million uninsured without raising more money. "I don't see how it's not going to cost money, especially in the first couple of years," says Tracy Hyams, deputy director of the Harvard Program on the Future of Health Care.

An internal White House memorandum written by Ira Magaziner, the White House aide who administers the task force under Mrs. Clinton, estimates that expanding access to everyone would cost an additional $30 billion to $90 billion annually.

The memo, which was leaked to a newspaper and the facts confirmed by the White House, discussed options for paying that cost that included taxing part of employer-provided health benefits as income. Currently these benefits are deductible from the taxes of the employer and untaxed for the employee. The most likely way to tax part of them is to cap the dollar value of benefits that is deductible.

Clinton expressed his reluctance to raise taxes further on the middle class, however, in a meeting with business and labor leaders last week.

For organized labor, protecting health benefits from taxation is a top priority.

The effort to negotiate these shoals is tremendous and the deadline is tight. Mrs. Clinton's task force has divided into nearly 30 working groups that altogether have about 400 people reporting to them. She is to have legislation ready by the end of April, the close of the president's first 100 days.

Although the members and staff of the task force have not been disclosed, many of those 400 are apparently relatively junior aides to members of Congress. Their roles are probably more political than substantive, meaning they represent a way for many in Congress to be involved. The actual plan will probably be drafted by a more elite group.

"They've got a lot of talent there and a lot of perspectives," says a Senate aide. The political challenge is that the task force must produce a consensus bill with some bipartisan appeal, the aide says. "It can't be squeaked through, 51 to 49."

The health-care legislation will be central to deficit-cutting efforts. Medicaid and Medicare together amount to only about 16 percent of the current federal budget. But of the amount that the Congressional Budget Office expects the total federal budget to increase during Clinton's term, fully half will be from increases for Medicaid and Medicare.

The White House appears to be leaning toward direct control of medical costs, at least in the early years, as a backstop to its redesign of the system.