TO: CIANJ Health Care Roundtable

FROM: Paul Tyahla, Vice President, Government Affairs and Communications

DATE: November 19, 2009

SUBJECT: Senator Reid's Health Care Proposal

Introduction

Yesterday, Senator Harry Reid (D-NV) unveiled the Senate Democrats’ latest version of a health care reform bill. The legislation, titled the Patient Protection and Affordable Care Act, contains many of the same provisions as the House of Representatives package approved earlier this month. The major gulf between the House and Senate continues to be financing.

Basic Provisions

The new Senate package would mandate that most legal residents obtain health insurance by
January 1, 2014 and imposes a financial penalty on individuals who refuse. To help make insurance more affordable, newly-established insurance exchanges would subsidize insurance for individuals and families with income between 133 percent and 400 percent of the federal poverty level (FPL). Most non-elderly Americans earning less than 133% of the FPL would become eligible for Medicaid. Unlike the original Senate proposal, the new plan would establish a government-sponsored insurance option for most Americans, and would provide start-up funds to encourage the creation of cooperative insurance plans that could be offered through the exchanges.

The bill would also make changes regarding insurance companies. Most notably, it would require insurers to accept all applicants regardless of pre-existing conditions, and remove lifetime benefit caps.

Pay or Play Rules

Similar to previous versions of health care reform bills, Senator Reid's proposal includes penalties for individuals and employers that do not adhere to federal requirements. Firms with more than 50 workers that do not offer coverage would pay a penalty of $750 for each full-time worker at the company if any of their workers obtain subsidized coverage through exchanges. Firms with fewer than 50 workers, and those with relatively low average wages, could be eligible for tax credits to pay for part of their health insurance premiums.

As a rule, individuals who are offered insurance through their employer but declined it would not be eligible for any subsidies. However, a "firewal" would be erected for workers who had to pay more than 9.8% of their total income for employer-sponsored insurance and they would be exempt from any penalties. Under this circumstance, the employer would pay a penalty.

Tax and Fee Increases

(click chart to enlarge)

The primary tax increase used to fund Senator Reid's proposal is a tax on so-called "Cadillac Plans", which are defined as insurance plans with premiums in excess of $8,500 for individuals and $23,000 for families. Under the proposal, individuals and families with the high-premium plans would pay a 40% excise tax on the difference between the cost of their premiums and the $8,500/$23,000 plateau. This version of the bill has a higher threshold for Cadillac plans than previous editions, and the funding gap created by that change is filled with a new tax increase for high-wage earners. Individuals with incomes above $200,000 and households above $250,000 would see their Medicare payroll tax increase from 1.45% to 1.95%. It is not yet certain whether the tax increase would be paid for solely by the employee, or divided between the worker and employer. The bill also includes a tax on medical device manufacturers and insurers ($10 billion annually), and hospital insurance ($5.4 billion). The above chart can be enlarged to show the various funding mechanisms as a percentage of the overall package. All amounts are in billions of dollars and reflect the 2010-2019 time period.

Changes to Medicare/Medicaid

The other major funding mechanisms involve cuts in Medicare/Medicaid/Medicare Advantage spending. These include permanent reductions in annual updates to Medicare's fee-for-service rates, changing Medicare Advantage payment rates to reflect market averages, and reducing payments to hospitals that serve a high percentage of low-income patients.

The Congressional Budget Office estimates the bill would reduce the federal deficit by $130 billion over ten years. However, like previous CBO reports, this one includes more years of tax increases than it does spending on subsidies. In the long-term, CBO expects the reform measures to have extremely minor deficit impacts. The full CBO report is available at this link.

Conclusion

CIANJ continues to analyze the legislation and its impact on New Jersey businesses. The Association has already voiced concerns regarding the payroll tax increases and tax hikes on manufacturers, providers and insurers. These concerns are especially relevant to a state with a top marginal income tax rate that is second in the nation.

CIANJ members with questions or concerns should call 201.368.2100 or e-mail ptyahla[no spam]cianj[dot]org. As always, we will continue to post regular updates to our blog, send them through e-mail alerts to the Healthcare Roundtable, and update the entire membership through the CIANJ Business Beat.