The debate about health care reform is starting… again.

Here’s why. The Senate passed a bill and the House passed a bill. They have some significant differences to work out. Two of the biggest issues? Paying for the thing and abortion. Neither of those discussions will prove to be an easy task.

But for all of the hoopla and all of the press surrounding the reform, I was shocked, in my chats over the holidays, to find that most Americans really have no idea what’s in the plan – and what isn’t.

I guess I should say “initially shocked.” The more that I thought about it, it’s not too surprising that few folks can figure it out. The bills have been long and cumbersome. The hype surrounding them – on both sides – has been incredible.

So here are a few facts as they relate to funding and tax. I’m not going to focus on the bigger, social issues, like abortion, because that’s not what this blog is about. But rest assured, I have a few opinions on those topics, too…

First, cost. As blogged previously, the cost of the reform is enormous. Current estimates for both versions of the bill put the total cost at somewhere around $1.1 trillion. Trillion. As in $1,100,000,000,000. It would take you about 200,000 years to count to a trillion. It takes Congress about 10 years to spend it. But to make it palatable, they’re going to have to raise some money.

Second, the so-called Cadillac tax. The Senate version of the bill boosts the threshold for the tax on premium plans to $8,500 for an individual and $23,000 for a family receiving employer-sponsored benefits. The Senate also included a provision under which the threshold can be raised (or eliminated) in certain circumstances based on occupation, geography and age. That particular concession was thought to be a nod to unions who opposed the tax; according to a study by the National Opinion Research Center, 21% of companies with unionized workers offered benefit plans in excess of $23,000. Sen. Harry Reid (D-NV) offered a “manager’s amendment” to the bill in late December, which among other things, added longshoremen to the list of those who could be exempted from the tax; other exemptions include electrical linemen, police officers, fire fighters, paramedics, and emergency medical technicians, construction workers and farmers.

If not otherwise exempt, health care plans that cost more than those amounts would be subject to a 40% tax on the overage. The insurer would actually bear the burden of the tax but is expected to pass it along to the consumer (hence, the opposition). The Congressional Joint Committee on Taxation estimates that 14% of family health policies and 19% of individual policies would be hit by the tax in 2013; 37% of family policies and 41% of individual policies would be affected by 2019.

Third, flexible spending accounts. They won’t be quite so flexible. These accounts currently allow employees to use pre-tax dollars to pay for out-of-pocket costs that insurance won’t cover (diabetic testing supplies and glasses are good examples). Under the Senate version, there would be a $2,500 annual cap on those plans. The money in the plan would also count towards the $23,000 Cadillac tax threshold.

Fourth, tanning salons. The “Botax” is out. It’s been replaced by a tax on tanning. Makes total sense (not).

Fifth, increased taxes on people making over $200,000 a year. The Senate version increased the Medicare payroll tax to an additional 0.9%, putting the tax at 2.35% on those making more than $200,000 a year for individuals and $250,000 for couples. The original plan included a .5% increase.

What does all of this get us? Some compromise version of the bill will make insurance available to 31 million Americans who are currently uninsured by requiring Americans to buy insurance and subsidizing those who can’t afford it. Companies with 50 or more employees will be subject to penalties if they do not provide health care. The bill will also prevent insurance companies from denying coverage to people with pre-existing medical conditions, a factor which is believed to contribute to extraordinarily high health care costs.

As expected, the vote in the Senate was strictly along party lines. The tally was 60 yes, 39 no and 1 abstention; Sen Jim Bunning (R-KY) did not vote, citing “family commitments.”

Congress and President Obama are both pushing hard to get a final law pushed through by the end of the year. That’s going to mean some concessions – probably coming from the House. Senator Bob Menendez (D-NJ) expects that the final law will look more like the Senate version than the House. What compromises will be made are yet to be determined – but I have a good idea… You?

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Kelly Erb is a tax attorney and tax writer.


  1. The Congress is confused, they think that what Americans want is health insurance. This is not true. Insurance companies want Americans to be forced to pay for insurance, Americans want access to quality health care. Big difference.

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