Health care reform continues to elude Congress as lawmakers struggle to find ways to pay for its estimated $1 trillion cost. The House is poised to pass a massive health reform bill, America’s Affordable Health Choices Act (H.R. 3200), which includes a surcharge on higher income individuals. The Senate, however, is unlikely to pass its version of health care reform before Congress’ August recess.  A final bill is not expected to pass Congress until the fall or maybe later.

Individual coverage

One of the most far-reaching changes would be the mandate that all individuals obtain health care coverage. Individuals would be insured wither through their employer or by participating in a new national exchange (also referred to as a “gateway”). In the exchange, individuals would shop among private insurers and a possible public health insurance plan. Congress is expected to impose a tax on individuals who do not obtain insurance. Lower-income individuals, however, would receive a credit or voucher to help pay for the cost the cost of coverage.

Employers

Employers would be required to offer health care coverage or pay for coverage. Employers that opt out of providing coverage would pay an additional tax. Employer-provided coverage would also have to meet certain minimum standards. Small employers would be eligible for tax credits to help offset the cost of coverage.

 

Surtax

President Obama has promised that health care reform will not add to the federal deficit. Very few revenue raisers would generate the amount of money needed to fund health care reform. The House version of health care reform includes a surcharge on higher income individuals. The surcharge is estimated to raise more than $500 billion over 10 years.

For married couples filing jointly, a surtax of one percent would apply to the couple’s modified AGI that exceeds $350,000 but does not exceed $500,000; a 1.5 percent rate would apply to the couple’s modified AGI that exceeds $500,000 but does not exceed $1 million; and a 5.4 percent rate would apply to the couple’s modified AGI that exceeds $1 million.

For single individuals and heads of household, the dollar amounts would be 80 percent of the above-mentioned amounts. For married couples filing separately, the dollar amounts would be 50 percent of the above amounts. Moreover, the one and 1.5 percent rates would be increased to two and three percent if certain health care cost savings are not achieved by 2013.

Possible revenue raisers

The $1 billion price tag of health care reform has lawmakers looking at every option to generate revenue. Some of the proposals being debated are:

  • Delaying the effective date of worldwide allocation of interest rules;
  • Codifying the economic substance doctrine;
  • Limiting treaty benefits involving foreign multinational corporations;
  • Modifying or repealing the itemized deduction for medical expenses;
  • Limiting the student FICA exception;
  • Extending Medicare payroll tax to all states and local government employees;
  • Modifying or repealing the exclusion for employer-provided reimbursement of expenses under FSAs and similar arrangements;
  • Imposing an excise tax on sugar-sweetened beverages;
  • Heightening requirements for a hospital to keep its tax-exempt status; and
  • Reducing the special deduction for non-profit “Blues.”

The health care reform debate is likely to continue into the autumn and possibly longer. If you have any questions about the pending legislation, please contact our office.