Business In The Beltway

Health Care Reform From Here

Brian Wingfield and David Whelan, 12.24.09, 07:17 AM EST

The Senate gives Obama a Christmas present--who's paying for it?

WASHINGTON -- Democrats have said for months that 2009 was a make-or-break year for health care reform. But even with the Senate's 60-39 Christmas Eve vote in favor of overhaul, change is not guaranteed.

Next month, Congress will attempt the final and perhaps most delicate part of the process: blending the very different bills passed by the House and Senate. The contrasts are alarming: The House version would create a government-run insurance plan to compete with the private sector. To pay for reform, it would cut Medicare waste by nearly $500 billion over 10 years and levy a 5.4% surtax on people who make more than $500,000 per year ($1 million for couples). It also requires employers to offer workers coverage.

Under the Senate plan, there is no government-run "public option." It's paid for with a 40% excise tax plan with generous benefits, tax hikes on key industries, and a 0.9% increase in the Medicare payroll tax for individuals making more than $200,000 a year ($250,000 for couples). There's no mandate for employers with less than 200 workers to provide health insurance, but businesses with more than 50 employees can face stiff fines--as much as $750 per worker--if any of their employees tap government subsidies to purchase individual insurance coverage.

If the Democrats' leaders can bridge these and other differences, each chamber of Congress must pass a revised bill before sending it to President Barack Obama. Because support for health care reform is so fragile in the Senate, what emerges will probably hew to that chamber's bill. Assuming that this yearlong process doesn't implode at the 11th hour, we've compiled a list of questions that many readers will ask about health reform during the next several weeks.

Who's going to bear the brunt of the costs of reform?

You--more so if you're wealthy. Both bills have aspects that target the better-off, though the House's "millionaire's surtax" has less political momentum than the Medicare payroll tax hike. Robert Laszewski, president of the consulting firm Health Policy and Strategy Associates, warns that the cost to Americans will come in a variety of forms: higher federal income taxes, greater state expenses on Medicaid, lower wages due to higher insurance expenses for employers and taxes on insurers that are passed along to consumers. "There's no free lunch," argues Laszewski.

An important addendum: Unrelated tax provisions expected to take effect in 2011 could compound the health care tax headaches for the wealthy, suggests a recent memo by tax analysis firm CCH. These include the reinstatement of pre-Bush era marginal tax rates for individuals making more than $200,000 annually and an expected increase in the capital gains rate.

How will it be paid for?

Both bills include nearly $500 billion in Medicare savings, but the House and Senate disagree on the revenue raisers. The Senate's plan gets the nod. Dave Kendall, a health care expert at the left-leaning Third Way think tank, says lawmakers will probably try to find a way to make the Senate's 40% excise tax on "Cadillac plans" with generous benefits palatable to opponents, like many labor unions. Good thing--the House's proposed "millionaire's tax" isn't indexed for inflation, meaning that it could ensnare a growing number of people whenever inflation returns.

What's the impact on businesses?

Large firms can probably expect some type of mandate. Even the Senate's watered-down requirements call for firms with more than 200 employees to automatically enroll workers in employer-provided coverage. But with an election on the horizon and unemployment at 10%, look for giveaways to small businesses. That could mean an exemption from an employer mandate; almost certainly it means tax breaks. To make their bill more palatable, Senate Democrats are touting $13 billion in new tax benefits to small businesses, including some that would be available in 2010.

Here's the rub: If you're self-employed, you might be subject to the proposed Medicare payroll tax increase. The National Association of Manufacturers says that's a big issue for 70% of its membership. In addition, the Senate's proposed premium tax on private insurers--$2 billion in 2011, ballooning to $10 billion in 2016--could hit small businesses particularly hard, argues the private insurers' lobby.

Who are the winners and losers out of all this?

There's a bit of victory and defeat for all parties.
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