Baucus Health Bill Jumps Senate Hurdle

16 October 2009

The Senate Finance Committee has approved Sen. Max Baucus’s health reform bill, the America’s Healthy Future Act, which contains a number of new proposals affecting taxes.

The bill, approved by the tax-writing committee by a vote of 14 to 9, now heads to the Senate floor. However, the House of Representatives is currently considering its own health care reform bill, and the two sets of legislative proposals will eventually have to be reconciled before a final healthcare package lands on President Obama's desk for his signature.

According to Baucus, the Congressional Budget Office has said that the bill has an estimated cost of USD829bn dollars but is fully paid for and will reduce the federal deficit by USD81bn within the first ten years.

“The bill we passed today puts patients and doctors – not insurance companies – in the driver’s seat,” said Baucus. “It includes strong provisions to end insurance company practices that discriminate against those who are sick or have pre-existing conditions. It modernizes our health care system to reduce waste and inefficiency and slows health care costs that stretch families, businesses and our economy to a breaking point. This balanced, common-sense bill begins to shave the federal deficits. The American people deserve a health care system that works for them and this vote is a critical step toward that goal.”

Key tax measures include:

• Executive Compensation Limitations – This provision would limit the deductibility of executive compensation under Section 162(m) for insurance providers if at least 25% of the insurance provider’s gross premium income from health business is derived from health insurance plans that meet the minimum creditable coverage requirements. The deduction is limited to USD500,000 per taxable year and applies to all officers, employees, directors, and other workers or service providers performing services, for or on behalf of, a covered health insurance provider. This provision is effective beginning in 2012 with respect to services performed after 2009.
• Health Care Affordability Tax Credits – These tax credits would be available beginning in 2013 on a sliding scale based on the percentage of income that the cost of premiums represents.
• Small Business Health Care Affordability Tax Credits – Small businesses that provide health insurance coverage to their employees will be able to claim a tax credit of up to 35% of their contribution in 2011 and 2012, rising to 50% in 2013. Small businesses with 10 or fewer employees with average taxable wages of USD20,000 or less will be able to claim the full credit amount. The credit phases out for small businesses with more than 10 employees and average taxable wages of USD40,000.
• Cafeteria Plan Changes – This provision creates a Simple Cafeteria Plan, a vehicle through which small businesses can provide tax-free benefits to their employees on a simplified basis.
• High Cost Insurance Excise Tax – An excise tax on insurers of 40% of the aggregate value of employer-sponsored health coverage that exceeds a threshold amount, currently USD8,000 for individual coverage and USD21,000 for family coverage, beginning in 2013.
• Increase the Threshold for Claiming the Itemized Deduction for Medical Expenses – This provision increases the threshold for claiming the itemized deduction for medical expenses from 7.5% to 10% of adjusted gross income beginning in 2013. Individuals over the age of 65 would be able to claim the itemized deduction for medical expenses at 7.5% of adjusted gross income through 2016.

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