House Approves US Health Care Bill

by Leroy Baker, Tax-News.com, Washington

23 March 2010

President Obama's goal of health care reform took a large step closer to reality on Sunday when the House of Representatives narrowly approved a final package of health insurance reform paid for by various new taxes.

The Affordable Health Care for America Act squeaked though the House on Sunday evening by a vote of 220 to 211. Unsurprisingly, the legislation was opposed by all House Republicans, while 34 Democrats also voted against the proposals. While the vote was hailed as an "historic day" by senior House Democrats and the administration, the legislation must overcome a Senate vote before President Obama can sign the bill into law.

The bill levies a 40% excise tax on insurance companies and plan administrators for any health coverage plan with an annual premium that is above the threshold of USD10,200 for single coverage and USD27,500 for family coverage, effective from 2018.

The bill also increases the Hospital Insurance (HI) tax rate by 0.9% from 2013 on an individual taxpayer earning over USD200,000 (USD250,000 for married couples filing jointly). The provision also broadens the HI tax to include net investment income in the taxable base in the case of a taxpayer earning over USD200,000 (USD250,000 for a joint return). Net investment income is defined as interest, dividends, royalties, rents, gross income from a trade or business involving passive activities, and net gain from disposition of property (other than property held in a trade or business).

Beginning in 2011, the bill also imposes an annual flat fee on the pharmaceutical manufacturing sector according to market share. This is expected to raise USD2.5bn in 2011, rising to USD4.2bn in 2018, before falling to USD2.8bn in 2019 and thereafter. A similar fee is to be levied on the health insurance, raising USD8bn in 2014 and rising to USD14.3bn in 2018.

Additional revenue is raised by: restricting tax benefits on Health Savings Accounts; imposing an excise tax on manufacturers of medial devices;  increasing reporting obligations on corporations and employer-provided health plans; and restricting individual deductions for medical expenses.

It is expected that the Senate will take up the legislation later this week. The Democrats recently lost their 'super majority' in the upper chamber, which almost stopped the health reform legislation dead in its tracks; it is predicted however, that Senate Democrats will employ various complex procedural tools to ensure that the legislation will eventually reach President Obama's desk.

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