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Obama Unveils Health Care Reform Proposal of His Own

February 22, 2010
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Related Topics: Financial Impact, Benefit Design and Communication, Medical Benefits Law, Latest News
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President Barack Obama for the first time offered his own detailed policy prescriptions for health insurance overhaul on Monday, February 22, taking a middle ground between the House and Senate bills on penalties against employers that do not provide insurance.

Meanwhile, the proposal softens a tax on high-cost health plans and increases federal subsidies for low-wage workers.

Unlike the 1,000-plus-page bills passed separately last year by Democrats in the Senate and House, the president laid out the policies he wants to implement and the rationale for doing so in an 11-page plainly written document. A final bill is expected to be much longer.

Obama has embraced much of the Senate’s version of the bill, opting not to require employers to provide insurance but penalizing employers whose employees receive federal subsidies. The plan also eases penalties on individuals while increasing subsidies for low-income families and seniors.

The director of the Congressional Budget Office wrote on his blog that his office "cannot provide a cost estimate for the proposal without additional detail, and, even if such detail were provided, analyzing the proposal would be a time-consuming process that could not be completed this week." The White House said the plan totals $950 billion, about $75 billion more than the 10-year cost of the Senate health care reform bill.

To pay for the proposal, Obama is looking to increase taxes on health care companies, in particular drug and device makers. The plan also adds a 2.9 percent tax on passive income from interest, dividends, royalties and rents on individuals earning at least $200,000 and couples earning at least $250,000 a year.

The administration’s most salient attempt at regulating increases in insurance premiums is the proposal of creating a federal Health Insurance Rate Authority, ostensibly with the power to review and deny insurance company requests to raise premiums. The proposed new federal authority comes after a political firestorm regarding rate increases of as much as 39 percent for individual policies issued by WellPoint’s Anthem Blue Cross in California.

Small businesses have also faced exorbitant rate increases, including as much as 58.67 percent at Group Health Inc. in New York.

The proposal did not immediately draw a response from Republicans, with whom the president will meet Thursday, February 25, as part of a high-profile public discussion of a way forward on health care reform. Republicans have said they want to start discussions with a clean slate, not based on proposals drafted by Democrats.

Gone is the mandate from the House bill requiring employers that did not provide health benefits to pay a tax equal to as much as 8 percent of payroll. Instead, the administration took the Senate’s approach of requiring employers to pay a fine for each employee who receives a taxpayer-funded subsidy to buy health insurance. The fine was based on each person who received a subsidy or on the number of full-time employees.

The administration proposed to increase the per-employee penalty to $2,000 from $750. The Senate plan had proposed a penalty of $750 per full-time employee. As in the Senate bill, companies that offer insurance that is considered unaffordable would be fined $3,000 for each employee that receives a government subsidy to buy insurance. The administration would allow firms with 50 or more full-time employees to subtract by 20 the number of employees who were considered full time.

Small businesses would generally be exempt from the requirements and some would be eligible for tax subsidies to offset the cost of providing employees with health insurance.

The proposal is in keeping with previous insurance reforms that prohibit denying coverage for pre-existing conditions or instituting lifetime or annual limits on coverage. Employers, though, would no longer be penalized for having waiting periods before new employees are eligible for coverage. Waiting periods could not be longer than 90 days.

Obama also acquiesced on a controversial element in the Senate plan: the 40 percent tax on high-cost health insurance, or the so-called “Cadillac” plans.

The president raised the threshold at which the tax would kick in to $27,500 for family coverage starting in 2018. The Senate had originally set the limit at $23,000, to be implemented in 2014, but then changed it to $24,000 at the request of unions, which were exempt from the tax until 2018. Individual plans would have to cost $10,200 before being taxed.

For individuals, Obama retained the requirement that all residents purchase health insurance, but increased subsidies to help low-income families do so while lowering the penalty against individuals who do not buy insurance.

Health plans offered by employers before legislation takes effect would have to cover adult dependents up to age 26, prohibit all annual and lifetime limits, ban exclusions based on pre-existing conditions, and prohibit discrimination in favor of highly compensated individuals. Beginning in 2018, the proposal would require “grandfathered” plans to cover proven preventive services with no cost sharing.

—Jeremy Smerd 

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