Bill would give pre-tax premiums to retirees, military

Federal retirees, legislative branch employees and members of the armed services would be able to pay their health insurance premiums out of pre-tax earnings under a bill introduced Thursday by Rep. Tom Davis, R-Va.

The benefit has already been extended to the rest of the federal workforce, under plans issued by the Office of Personnel Management in February. Executive branch employees will receive the pre-tax benefit beginning in October under an order from President Clinton. Davis' bill, H.R. 4277, would extend the benefit beyond the executive branch. The federal judiciary already offers employees non-taxable health insurance premiums

"While it will not directly reduce the cost of their health insurance, it will put more of their paychecks where they belong-in their bank accounts," said Davis.

Under the bill, affected employees and retirees would have health insurance premiums deducted from pre-tax dollars, just like federal and state income taxes. As a result, most employees will benefit from lower taxable income. Current tax code permits private sector employers to offer this benefit to employees, but not to retirees.

Davis said the bill has no direct cost for the government, but it would result in a loss of tax revenue. So far Reps. Connie Morella, R-Md., and Frank Wolf, R-Va., have cosponsored the bill.