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WASHINGTON (CNN) – A controversial new tax on employer-provided medical benefits is gaining traction among Senate health care negotiators as a way to help pay for a $1 trillion reform package moving through Congress, two key senators said Wednesday.

Bipartisan Senate negotiators are "starting to coalesce" around the idea, according to Senate Finance Committee Chairman Max Baucus, D-Montana.

Any tax is controversial - but this proposal is especially politically charged, since President Barack Obama opposed the idea when he ran for president. White House officials from the president on down have sent mixed messages in public in recent weeks about whether he'd accept such a tax.

Baucus says the president has told him he is "flexible" on the proposal.

Leaving a closed-door negotiating session on health reform, Sen. Kent Conrad, D-North Dakota, said, "It's hard for me to see how you have a package that is paid for that doesn't include" the new tax.

Sen. Charles Grassley, R-Iowa, said the tax would be based on the value of a federal employee's health benefits package plus 10 percent, meaning a family of four would pay income tax on health benefits valued at more than $17,000. Currently employer-provided health insurance is tax-free, regardless of its value.

Baucus and Conrad also said they are considering other tax increases not related to health care, including an early proposal form President Obama to reduce tax deductions for wealthier people. Many lawmakers panned the idea when Obama first floated it.

"That's on the table and variations on the theme are on the table," Conrad said.

"There's no free lunch," Baucus said, when asked about other options.