Background

In the House bill, the cost of providing health care to the uninsured will exceed $1 trillion over the next ten years and create long- term federal obligations. The new taxes on income, medical devices among other taxes will begin in 2011. And new health care options will become available in 2011. Individuals will be required to purchase heatlh care in 2013. The bill is projected to reduce the number of uninsured from an projected 54 million in 2019 to 18 million over the next 10 years.

The majority of the Affordable Health Care for America Act is financed through a surtax on married couples with adjusted gross incomes exceeding $1 million a year and individuals earning over $500,000 a year. The surtax is not indexed for inflation and would begin in 2011 at a 5.4 percent rate. The tax will need to generate a minimum of $460.5 billion, much of it from small business owners who are paying taxes for their company as a sub chapter S corporation. The other half of the cost will be offset by reductions in reimbursements under Medicare.

Employers will be required to provide health care or pay a penalty. Businesses with a combined annual payroll exceeding $750,000 will be required to pay an 8 percent penalty for its uninsured workers. Employers who choose to offer coverage must contribute at least 72.5 percent of premiums for individuals and 65 percent for families. Employees will be required to be covered or pay a tax of 2.5 percent of adjusted gross income.

The legislation includes credits for very small business but they provide small employers limited value. The legislation contains a government insurance option and expands Medicaid. It also includes a corporate information reporting proposal, which would require reporting on most third party transactions, limits the amount employees can contribute to health care flexible spending accounts, ends deductions companies can take for retiree prescription drug coverage, and increases penalties for nonqualified distributions from health savings accounts.

Key Provisions

The bill includes a mandate that employers provide health care and an individual mandate that requires individuals to obtain health care however the bill includes no mechanism to reduce health care cost for companies providing health care.

The bill does not address medical malpractice or allow purchase of health care through association health plans.

New Health Insurance Exchange. The nationwide exchange would provide eligible individuals and small businesses with access to insurers’ plans in a comparable way, but would not act as insurers themselves. All plans in the exchange would be required to meet a new benefit standard determined by the Commissioner. Eligibility for the exchange is limited to individuals with employer coverage deemed “insufficient” and employees of small employers. Employers with 25 or fewer employees would be eligible in the first year, employers with 25-50 employees in the second year, and employers with fewer than 100 employees in the year. Larger employers may be eligible to enter exchange in later years.

New Government-Run Plan. A new “public health insurance option” would be offered in the exchange. This option creates an essential benefits package that provides a comprehensive set of services. The plan would require the HHS Secretary to negotiate reimbursement rates with doctors and hospitals, establish premium rates, and establish conditions of participation for health care providers.

Impact on Private Insurance Market. The new regulations on private insurers would eliminate the market for individual health insurance and would impact employer provided coverage after a five year grace period. The new mandate and regulation would increase health costs for employers and employees and force many of them into the government exchange.

Medicaid Expansion. The bill would expand Medicaid to all individuals with incomes under 150 percent of poverty. The bill is projected to expand participation by 10 million individuals and the federal government would pay for it only through 2014, later years would be an unfunded mandate on the states.

“Pay or Play” Mandate on Employers. Employers will be required to provide qualified health benefits and contribute at least 72.5 percent of the costs for individuals and 65 percent for family coverage. The bill extends the employer mandate to part-time employees at a level to be determined at a later time. The limited exemption for employers would be firms with total payroll under $500,000. Employers with payroll between $500,000 and $750,000 would be subjected to a tax penalty of 2 to 6 percent of payroll. Firms over $750,000 in payroll would be subjected to an 8 percent tax. The rates are not indexed for inflation and would impact even smaller employers in the future as wages rise. Employers would be subjected to increased audits and investigations of non-compliance and could face fines of $100 per employee per day for non-compliance. Employer provided health care is expected to cover 168 million people by 2019 up from 150 million projected for 2010.

Individual Mandate. The bill requires individuals with out health care coverage to be taxed 2.5 percent of their adjusted grows income up to the level of the premium of plans in the exchange. The CBO estimates that the exchanges will cover 21 million people by 2019 and those purchasing non group plans will remain about even with 2010.

Income Surtax. The bill imposes a 5.4 percent surtax on individuals with income for $500,000 and families with incomes over $1 million (estimated to generate $460 billion in new taxes). Tax begins in 2011 and is not indexed. It is estimated more than half of filers at this income level are small business owners.

Tax on Health Plans. The bill would prohibit reimbursement for over the counter pharmaceuticals from Health Savings Accounts, Medial Savings Accounts, Flexible Spending Arrangements and Health Reimbursement Arrangements. Penalties would be increased for non-qualified Health Savings Account withdrawls. Caps would be place on Flexible Spending Arrangement contributions to over $2,500 a year.

Additional Taxes on Health Products. The bill imposes a 2.5 percent excise tax on medical devices.

Malpractice Insurance. The bill fails to address medical malpractice reform. Malpractice insurance costs are one of the factors that have increased overall health care costs and have also driven many doctors out of certain specialties. Any comprehensive health care reform legislation must limit exposure to litigation for doctors while protecting the rights of those with legitimate claims.

Association Health Plans. The bill fails to allow the purchase of health care through association health plans. Association Health Plans allow small businesses to become part of a larger buying pool to obtain health coverage at reasonable costs, and provide more and better options for coverage by giving small companies the opportunity to bargain with insurers on the same economy of scale as large companies.