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House Democrats Roll Out Health Care Reform Plan That Would Tax the Wealthy

July 15, 2009
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Related Topics: Medical Benefits Law, Benefit Design and Communication, Workforce Planning, Latest News
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House Democrats unveiled Tuesday, July 14, a controversial tax on high-income earners to help pay for health care reform. The proposed bill would also require employers with 25 or more employees to provide health coverage or pay an 8 percent payroll tax, a provision that was quickly denounced by employer groups as especially hurtful to small businesses.

Many of the requirements released in the latest House version of health care reform are similar to proposals previously detailed in the Senate but with stiffer penalties for employers.

Employers with 25 or more employees, under the bill’s provisions, would be required to provide health coverage to employees or pay an 8 percent payroll tax. A similar mandate in a Senate bill would charge employers who do not provide coverage $750 per full-time employee per year.

As in a previous draft, employers would pay 72.5 percent of the premium cost for full-time employees and 65 percent for a family policy while meeting minimum coverage standards. In the Senate measure, employers would have to pay 60 percent of the cost of coverage.

The new House bill specifies that employers that offer health care benefits would be required to automatically enroll employees into their programs. Individuals, meanwhile, would not be allowed to opt out of employer-sponsored health care unless the cost is 11 percent or more of an individual’s income. In the Senate bill, that threshold was 12.5 percent of income.

The House bill includes a public insurance plan that would pay hospitals and doctors Medicare rates as well as a requirement that all Americans purchase health insurance or pay an additional income tax of 2.5 percent—up from 2 percent in the earlier version.

The earlier House version had already caused a splinter within the Democratic Party, with fiscally conservative “Blue Dog” Democrats opposing a bill that would add to the deficit.

In a concession to the Blue Dogs, the new bill contains an exemption for employers who would otherwise have to provide insurance but whose payrolls total less than $250,000.

Likewise, the 8 percent payroll tax would be scaled down for employers whose revenue was less than $400,000.

Small employers with fewer than 25 employees would not have to provide coverage but would be eligible for a sliding-scale subsidy if they did.

A preliminary estimate from the Congressional Budget Office, released Tuesday, said the bill would cost about $1 trillion over 10 years, down from the $1.5 trillion estimate that accompanied the House’s draft bill last month.

The legislation would reduce the uninsured by 37 million but would still leave about 17 million uninsured by 2019, the CBO said in a letter to Rep. Charles Rangel, D-New York and chairman of the House Ways and Means Committee.

Democrats, however, said during a news conference Tuesday afternoon that their bill would insure 97 percent of Americans without adding to the deficit.

“We’re still on schedule to do what we planned—to vote on this legislation before the August recess,” said House Speaker Nancy Pelosi, D-California. “The bill will be paid for.”

The proposal would not tax health care benefits, leaving the current exemption in place.

“We’re not going to have it in our bill, and it doesn’t sound like the Senate is going to have it in their bill either,” said Rep. George Miller, D-California and chairman of the House Education and Labor Committee.

The tax on benefits was seen by the Congressional Budget Office as a major source of revenue to pay for health care reform that would also help reduce costs in the long term.

Instead, the House Democrats’ bill would raise overseas corporate taxes and increase taxes on wealthy individuals.

The bill would impose a surcharge on the top 1.2 percent of earners with adjusted gross income in excess of $280,000 for individuals and $350,000 for those married and filing a joint return.

A letter from about 30 employer groups, including the Society for Human Resource Management and the U.S. Chamber of Commerce, strongly criticized the House bill as bad for business—specifically the 8 percent payroll tax on employers that don’t provide coverage, the public plan option and the proposed Health Benefits Advisory Council, which would set coverage decisions.

James Gelfand, senior manager for health policy at the Chamber of Commerce, said the surtax on wealthy Americans would hurt small-business owners since the majority of Americans who earn that much own small businesses.

“This House bill is completely headed in the wrong direction,” Gelfand said. “I don’t know what could be worse than adding new taxes to small business.”

House Democrats also added a $10 billion reinsurance program to help employers pay for retiree medical care, copying an identical measure in the Senate.

The proposal would reform the insurance market by eliminating co-pays for preventive care, cap out-of-pocket expenses and guarantee catastrophic coverage to protect Americans from medical bankruptcy.

The bill would also increase payments to primary-care doctors.

Jeremy Smerd and Mark Schoeff Jr.

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