Senate Finance Committee Chairman Max Baucus, D-Mont.,during a private meeting Tuesday with the president and other Democratic senators and later reported the president's response: "It's on the table. It's an option."
The federal government would reap about $250 billion a year if it treated health care benefits given to employees like wages and taxed them.
Baucus and others are eyeing that money as they search for ways to pay for a costly health care overhaul that would extend coverage to 50 million Americans who are now uninsured. That could cost some $1.5 trillion over 10 years.
The president adamantly opposed health benefit taxes during the campaign, arguing they would undermine job-based coverage. But he's now indicating openness to that suggestion from Congress, even if he criticized Republican presidential rival John McCain for proposing a sweeping version of the same basic idea.
Obama has made some suggestions of his own for paying for a health care overhaul, including cuts to Medicare and limiting tax deductions wealthy people can take, but they've run into opposition from Congress. And, they only add up to about $630 billion over 10 years.
"The president made it clear during the campaign that he has serious concerns about taxing health care benefits," White House spokesman Reid Cherlin said in a statement about Tuesday's meeting.
"He stated again his belief that health reform can't wait another year, and that while all options should be considered, those options should include the revenue proposals that he included in his budget," Cherlin said. "He made it very clear that he prefers the approach he has already outlined."
After the talks, the President acknowledged, however, that without significant measures to reign in costs, "it is going to be very difficult for us to expand coverage." (Read more on Obama's meeting with the Senators in the Political Hotsheet blog.)
"These two things have to go hand-in-hand," Obama said.
Some experts think limiting the tax exclusion for health benefits is the only way to get the necessary money to pay for a sweeping health care overhaul. But there's opposition from organized labor and from many Democrats, including House Ways and Means Chairman Charles Rangel, D-N.Y., who said recently there was "no way" he would support the approach.
Baucus wants to look at limiting - but not entirely eliminating - the tax-free status of employer-provided health benefits. Obama is leaving the details of crafting a health care bill to Congress and used Tuesday's meeting to urge senators to swift action.
"This window between now and the August recess I think is going to be the make-or-break period," Obama said before the meeting was closed to reporters. "This is the time where we've got to get this running."