I’ll confess that I got up today with a bit of fear and trepidation. You see, I had been assured by both sides of the health care reform debate that no matter the final tally, the world would end after the health care vote. Remarkably, Earth is still spinning this morning.
The health care reform bill has been making serious news for about a year now. Although there have been efforts in the past to reform health care (CNN reports that every Democratic president since Truman has sought universal health care coverage), this was the first time that it had any legs. Maybe no teeth, but legs.
Up until the last minute, it wasn’t a sure thing that the bill would pass. Democrats indicated that they would have enough votes but Republicans cast doubt on that claim with Rep. Mike Pence (R-IN) promising, “[i]t’s going to be an interesting day.”
With that in mind, I flipped on CSPAN yesterday to watch the coverage. It was fairly entertaining though hardly enlightening. The speeches were more about pomp than persuasion. At one point, my five year looked at me and asked, “Mommy, is anyone going to win?” I answered her as honestly as I could, “Honey, I don’t know.”
The final vote was 219-212 to pass the bill; every available member of the House voted (if you’re wondering about the screwy math, as I was, it’s because there are currently four vacancies on the Hill). The vote was strictly partisan. All 178 Republicans opposed the bill and all but 34 Democrats voted in favor of the bill.
The President is expected to sign the bill into law today. A package of compromises will then move to the Senate. It’s not a complete redo, just the compromise pieces and they’re expected to pass since only a simple majority is required. Most of the key provisions of the House bill were taken from the Senate version of the bill that passed in December.
The bill will cost taxpayers $875 billion though offsets are projected to cut the deficit by $118 billion. The compromise package, if it passes, will tack on an additional $65 billion to the tab, though it will reportedly reduce the deficit by an additional $25 billion. That’s not a guess: those numbers are taken from the non-partisan Congressional Budget Office (by the way, some good info on their site – check it out).
That’s a lot of money. And that’s my major concern with the bill: the cost. It’s expensive. Granted, it’s less than the costs of the wars in Iraq and Afghanistan to date. But that’s my issue with Congress over the past ten years: a few billion here, a few billion there. We’re spending money like we have a never-ending supply of it. News flash: we do not. And that leads me to the financial particulars of the bill. Follows are a few of the highlights:
Individual health insurance coverage. The key component of the bill is mandatory health insurance coverage. Most Americans will now be required to have health insurance or pay a fine of up to $695 or 2.5% of income; those rates kick in during 2016 with rates beginning at $95 per person or 1% of income beginning in 2014. Exceptions exist for those who cannot afford coverage; subsidies will be in place for a family of four making up to about $88,000 annually (about 400% of the federal poverty level). Despite what my good friend told me today, there is no plan to jail anyone for refusing coverage.
Employer coverage. Large employers will be required to provide coverage for employees or they will be subject to a fine of $750 per worker. Under the compromise package, that number would be $2,000 per worker. A “large employer” is defined as one with more than 50 employees. Small businesses, the self-employed and the unemployed will have access to a series of health insurance exchanges (though illegal aliens will not be allowed to participate). In one of the many inconsistencies in the bill, “small businesses” are defined as those with no more than 100 employees; apparently that definition only applies to the exchanges. To help pay for the cost of coverage, small businesses may qualify for a tax credit of up to 35% of their contribution towards premiums. For purposes of this credit, a small business is one with 25 or fewer employees (*I know*). The credit is temporary and will be in place for 2011, 2012 and 2013. Additional credits may be available after 2014, with restrictions.
Cafeteria plans. The act also relaxes the cafeteria plan rules for some small businesses. The idea is to encourage small businesses to offer tax-free benefits to employees. Cafeteria plans generally include health insurance but also include life insurance and flexible spending accounts.
Flexible Spending Accounts (FSAs). FSAs allow employees to use pre-tax dollars to pay for out-of-pocket costs that insurance won’t cover, such as diabetic supplies. The bill puts a $2,500 annual cap on those plans; that amount is indexed for inflation after 2013. Money in an FSA would also count toward the caps for purposes of the “Cadillac tax.”
Cadillac Tax. The infamous “Cadillac tax” would be imposed on high-cost plans provided by employers that exceed $10,200 for a single person or $27,500 for a family per year (these are higher than the prior numbers); those amounts are more than twice as much as the average annual health insurance contributions made by employers. Higher caps apply to retirees and high risk professions like EMTs and construction workers. The tax would apply only to the amount over the cap; the burden for the tax is not on the employee but the insurer or employers who act as their own insurers.
Medicare Tax. The act, as written, does not include an extra income tax on high income taxpayers. However, it does include an additional Medicare tax on individual taxpayers making more than $200,000 and married taxpayers making more than $250,000. The tax is an additional .9%, bringing the total Medicare payroll tax payable to 2.35% of wages. This is largely consistent with the 2009 version of the bill prior to the Senate vote. An additional Medicare tax of 3.8% will be imposed on net investment income for those same high income taxpayers. Net investment income includes exactly what you’d think with one important exception: distributions from qualified retirement plans, including pensions and IRAs, would be exempt. Worth noting: those dollar marks are not indexed for inflation (seriously, Congress?).
Medical Expenses. The floor for itemizing medical expenses has been increased from 7.5% of AGI to 10% of AGI beginning in 2013. Seniors are exempt from the increase through January 2017.
Adoptions. The bill also makes the adoption credit refundable (!) and raises the dollar limitation for the credit to $13,170 and extends the credit through 2011. Tax incentives for adopting children with special needs are also included in the bill.
It’s a long bill – and these are just some of the tax-related pieces that I’ve highlighted. The dollar amounts – and the specifics – are still subject to change. Heck, the whole thing could change between now and 2013 (and in some cases, 2018), so keep that in mind.
And since I rarely mention something this big without additional commentary, I won’t break tradition here. I’m really conflicted about this bill. To be clear, I support the idea of health care reform. I do, however, worry about the cost of the reform as proposed by Congress. The bill is huge. And the potential for greedy insurance companies (who have now hit the jackpot with mandatory coverage for all Americans) to continue to abuse the system is enormous. That scares me more than just a little bit.
As an employer, I fear that the mandates may increase my costs even more. In 2010, coverage for my employees (which we had previously covered 100%) increased more than 25%. We pay more for health insurance at my law firm than we do for rent and all utilities combined. It is the single most expensive cost after payroll to run my business.
But I can hardly defend the idea that I somehow deserve health insurance coverage – while others don’t – because of the choices that I’ve made. While I have good insurance now, I have been without coverage. And it wasn’t because I was lazy or stupid or any of the other excuses I’ve heard tossed about in an effort to “explain” why someone would be without coverage; I was working my way through law school and my jobs didn’t offer coverage. I have dealt with the embarrassment of sitting at the radiologist, waiting for the results of my credit check in order to “qualify” for an X-ray because although the ER was required to treat me without insurance, radiology wasn’t. That’s the system we have now.
And despite the fact that we want to paint people into corners, bad things happen to good people. My non-smoking, non-drinking Mom who did all of the right things got cancer when she was my age. And my oldest daughter (who’s fabulous now, thank you very much) struggled to make it into the world and spent her first few days in the NICU. I have a hard time believing that their lives, as dear as they are to me, are much more or less valuable than that of any other person. And I definitely don’t believe that either one of them deserved to be sick.
I guess that lands me somewhere solidly in the middle of this debate. I believe in affordable health care. I don’t trust that to Blue Cross or Aetna (who rank fairly close to Wachovia on my list of “Who’s the devil?”) but I don’t trust it to Congress either. Let’s hope that we can find the collective wisdom, as a nation, to make this thing work – without bankrupting our country (even more) or squelching our wonderful entrepreneurial spirit. I have to think it’s possible.
I’d love to hear your thoughts. Please remember that the focus of this blog is tax. While I respect your wish to talk about tax in the broader scheme of things (heck, it’s what I do all of the time), this isn’t a platform for you to sound off about how you feel about abortion, immigration or any other inflammatory topic at the expense of anyone else. So keep it civil, people. And be sure and read my comment policy. It’s there for a reason.