One of the key issues the White House, House, and Senate will be negotiating behind closed doors, is how to pay for President Obama’s $2.5 trillion plan. Reconciling the differences between these two bills will remain a difficult task for legislators particularly as they rely on a different mix of revenue-generators. The following two lists include key revenue-generating mechanisms in both the House and Senate bills as reported by Tax Notes.
House-passed Affordable Health Care for America Act (H.R. 3962):
- $460.5 billion over 10 years from a 5.4 percent Surtax on individuals making more than $500,000 and families earning more than $1 million (begins 2011)
- $135 billion as part of an 8 percent tax of a firm’s payroll ($750,000 or more) and a lower rate if firm payroll is between $500,000 $749,999 (begins 2013)
- $33 billion as part of a 2.5 tax on modified adjusted gross income (AGI) for those individuals that do fail to secure “acceptable” health coverage (begins 2014)
- $20 billion from a 2.5 percent excise tax on medical devices (begins 2013)
- $17.1 billion in corporate information reporting requirements (applies to payments made after December 31, 2011)
- $13.3 billion from a cap on Flexible Spending Accounts (FSAs) at $2,500 and indexed forward to the CPI-U (begins 2011; currently there is no cap)
- $7.5 billion for the limitation of tax treaty benefits related to U.S. withholding tax imposed on deductible related-party payments
- $6 billion from a “worldwide interest allocation” repeal (begins 2011)
- $5.7 billion as a result of codifying the economic substance doctrine and imposing penalties on underpayments
- $5 billion for reforming the definition of medical expenses under FSAs, health savings accounts, Archer Medical Savings Accounts, and health reimbursement arrangements, including the exemption of over-the-counter medications prescribed by a doctor (begins 2011)
- $2.2 billion as part of an end to the Medicare Part D subsidy (begins 2013)
Senate-passed Patient Protection and Affordable Health Care Act (H.R. 3590):
- $148.9 billion as part of a 40 percent nondeductible excise tax on insurance plans of more than $8,500 for individuals and $23,000 for families and indexed to the CPI-U plus 1 percentage point (begins 2013)
- $101 billion in yearly nondeductible fees on manufacturers and importers of pharmaceuticals (begins 2010), on manufacturers and importers of medical devices (begins 2011), and health insurance providers (begins 2011)
- $86.8 billion as part of Medicare Payroll tax increase from 1.45 to 2.35 percent for individuals with wages of more than $200,000 and $250,000 for joint filers (begins 2013)
- $28 billion from employer penalties on full-time workers that receive subsidies to purchase coverage through new insurance exchanges
- $17.1 billion in corporate information reporting requirements (applies to payments made after December 31, 2011)
- $15.2 billion from an increase in the floor for deductible medical expenses from 7.5 percent of AGI to 10 percent of AGI and a “carve-out” for those older than 65
- $15 billion in tax penalties on individuals who fail to secure “qualified” health coverage (begins 2014)
- $13.3 billion from a cap on Flexible Spending Accounts (FSAs) at $2,500 and indexed forward to the CPI-U (begins 2011; currently there is no cap)
- $5.4 billion as part of an end to the Medicare Part D subsidy (begins 2011)
- $5 billion for reforming the definition of medical expenses under FSAs, health savings accounts, Archer Medical Savings Accounts, and health reimbursement arrangements, including the exemption of over-the-counter medications prescribed by a doctor (begins 2011)
The House- and Senate-passed bills clearly deviate from one another on the types of revenue-generating mechanisms included to maintain at least a “deficit-neutral” CBO score. The House bill relies punitively on both a surtax on high-income individuals as well as employers (even reaching small businesses). Alternatively, the Senate bill predominantly relies largely on a Medicare payroll tax on high-income individuals, fees on pharmaceutical medical device and health insurance providers, as well as an excise tax on high-value health insurance plans.
It is unclear, and will likely remain unclear until a final bill is passed, regarding the exact mix of revenue-generating mechanisms included to finance a final health care reform bill. What is clear, however, is that American individuals and businesses should begin bracing now for higher taxes—they are coming in one form or another!
Standing in the Rose Garden on November 7th, President Barack Obama celebrated the passage of the House health care bill claiming: “The Affordable Health Care for America Act is a piece of legislation that will provide stability and security for Americans who have insurance; quality, affordable options for those who don’t; and bring down the cost of health care for families, businesses, and our government, while strengthening the financial health of Medicare.” Quite a bold statement if true. But a report released Friday by the non-partisan and independent Centers for Medicare and Medicaid Services, the agency in charge of running Medicare and Medicaid, blows the lid off of every one of Obama’s claims. All of the following quotes are from the report itself:
Health Care Costs Increase: “In aggregate, we estimate that for calendar years 2010 through 2019 [national health expenditures (NHE)] would increase by $289 billion, or 0.8 percent, over the updates baseline projection that was released on June 29, 2009.” In other words, Obamacare bends the cost curve up, not down.
Millions Lose Existing Private Coverage: “However, a number of workers who currently have employer coverage would likely become enrolled in the expanded Medicaid program or receive subsidized coverage through the Exchange. For example, some smaller employers would be inclined to terminate their existing coverage, and companies with low average salaries might find it to their - and their employees’ - advantage to end their plans … We estimate that such actions would collectively reduce the number of people with employer-sponsored health coverage by about 12 million.” In other words, Obamacare will cause millions of Americans to lose their existing private coverage.
Millions Pay Fines Yet Remain Uncovered: “18 million are estimated to choose not to be insured and to pay the penalty associated with the individual mandate. For the most part, these would be individuals with relatively low health care expenses for whom the individual or family insurance premium would be significantly in excess of the penalty and their anticipated health benefit value.” In other words, 18 million Americans will either face jail time or be forced to pay a new tax they will receive no benefit from.
Millions Lose Medicare Advantage: “Section 1161 of Division B of H.R. 3962 would set Medicare Advantage capitation benchmarks … We estimate that in 2014 when the MA provisions would be fully phased in, enrollment in MA plans would decreased by 64 percent (from its projected level of 13.2 million under current law to 4.7 million under the proposal).” In other words, 8.5 million seniors who currently get such services as coordinated care for chronic conditions, routine eye and hearing examinations, and preventive-care services would lose their existing private coverage.
Millions Placed on Welfare: “Of the additional 34 million who are estimated to be insured in 2019 as a result of H.R. 3962, about three-fifths (21 million) would receive Medicaid coverage due to the expansion of eligibility to those adults under 150 percent of the FPL.” In other words, more than half the people who gain health insurance will receive it through the welfare program Medicaid.
Seniors Access to Care Jeopardized: “H.R. 3962 would introduce permanent annual productivity adjustments to price updates for institutional providers… Over time, a sustained reduction in payment updates, based on productivity expectations that are difficult to attain, would cause Medicare payment rates to grow more slowly than and in a way that was unrelated to, the providers’ costs of furnishing services to beneficiaries. Thus, providers for whom Medicare constitutes a substantive portion of their business could find it difficult to remain profitable and might end their participation in the program (possibly jeopardizing access to care for beneficiaries).” In other words, the Medicare cuts in the House bill are so out of touch with reality that hospitals currently serving Medicare patients might be forced to stop doing so. Thus making it much more difficult for seniors to get health care.
Poor’s Access Problems Exacerbated: “In practice, supply constraints might interfere with providing the services by the additional 34 million insured persons. …providers might tend to accept more patients who have private insurance (with relatively attractive payment rates) and fewer Medicaid patients, exacerbating existing access problems for the latter group.” In other words, those 21 million people who are gaining health insurance through Medicaid are going to have a very tough time finding a doctor who will treat them.
Reacting in part to Friday’s CMS report, Robert J. Samuelson writes in today’s Washington Post:
The disconnect between what President Obama says and what he’s doing is so glaring that most people could not abide it. The president, his advisers and allies have no trouble. But reconciling blatantly contradictory objectives requires them to engage in willful self-deception, public dishonesty, or both.
There is a reason why as more Americans learn about Obamacare, the less popular it gets.
Quick Hits:
- Commenting on President Barack Obama’s meeting with Emperor Akihito of Japan, an academic with expertise about the Japanese Empire tells ABC News: “The bow as he performed did not just display weakness in Red State terms, but evoked weakness in Japanese terms….The last thing the Japanese want or need is a weak looking American president and, again, in all ways, he unintentionally played that part.”
- Thanks to conservatives in Congress, President Obama has been “hobbled” in his search for a global warming treaty.
- The government paid more than $47 billion in questionable Medicare claims including medical treatment showing little relation to a patient’s condition, wasting taxpayer money at a rate nearly three times that of the previous year.
- Former Assistant Secretary of Treasury and Deputy Assistant to President George W. Bush Tony Fratto explains why President Obama’s trip, and his “new engagement” with Asia, ignores the achievements of many past U.S. presidents.
- After $111 billion in bailouts for Fannie Mae and Freddie Mac, the Federal Housing Administration is also close to a taxpayer bailout.