US: Reid Unveils Health Bill

by Mike Godfrey, Tax-News.com, Washington

24 November 2009

As expected, Senate Majority Leader Harry Reid has introduced new healthcare reform proposals in the Senate which will be partly paid for by an increase in a payroll tax on high income earners.

Like the other versions of healthcare reform legislation submitted to Congress, Reid's bill attempts to expand healthcare insurance coverage, in this case to cover more than 94% of the US population, within President Obama's USD900bn price tag and without increasing the federal deficit (in fact, Reid claims his legislation will reduce the deficit over the next 10 years and beyond).

The bill is partially funded by increases in the hospital insurance tax rate by 0.5% on an individual taxpayer earning over USD200,000 (USD250,000 for married couples filing jointly).

Reid's legislation also proposes a 40% excise tax on high-cost, employer-provided healthcare coverage (so-called "Cadillac" plans). The tax would be imposed on insurance companies and plan administrators for any health coverage plan with an annual premium that is above the threshold of USD8,500 for single coverage and USD23,000 for family coverage. A transition rule would increase the threshold for the 17 highest cost states for the first three years.

In addition, a 5% excise tax on voluntary cosmetic surgical and medical procedures performed by a licensed medical professional (which has been dubbed the "Botax" in the US media) will also help to pay for government subsidies.

Reid's bill also imposes numerous other revenue-raising measures, including, among others: an increase in tax on withdrawals from tax-free Health Savings Accounts (HSAs) and limiting contributions to HSAs; creating an information reporting requirement for all businesses that pay more than USD600 per year to corporate providers of services and property; an annual flat fee of USD2.3bn on the pharmaceutical sector with contributions linked to market share; an annual flat fee of USD2bn on the medical devices industry; a USD6.7bn annual flat fee on the health insurance sector; executive compensation deductibility limitations; and a modification of the threshold for claiming medical expenses.

Reid said that with this bill, Congress can begin "the last leg of this historic journey" towards healthcare reform.

“As the President asked us to do, we will not add a dime to the deficit – quite the opposite, in fact: We will cut it by USD130 billion in the first 10 years and by as much as three-quarters of a trillion dollars in the first 20," Reid said in his Senate floor speech. “We do this by keeping costs down. This critical reform will cost less than USD85bn a year over the next decade – well under President Obama’s goal."

Senate Finance Chairman Max Baucus said that the bill is "a balanced, fiscally-responsible package that will deliver the real reform that American families, businesses and the economy need," that will ensure choice for consumers and help to pay down the federal debt.

However, summarizing the opposition to the bill on the other side of the aisle, Senate Republican Leader Mitch McConnell described Reid's proposals as "another trillion dollar experiment" that Americans ultimately do not want.

“This bill has been behind closed doors for weeks. Now, it’s America’s turn, and this will not be a short debate," he commented. "Higher premiums, tax increases and Medicare cuts to pay for more government – the American people know that is not reform.”

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