US Tax: Reid unveils 'merged' Senate health care bill

Senate Majority Leader Harry Reid, D-Nev., unveiled a comprehensive health care reform package November 18 that modifies the proposed excise tax on "Cadillac" health insurance plans that was approved by the Finance Committee last month, and adds new revenue provisions that would impose a payroll tax increase on high-income individuals and limit the special deduction under section 833 for certain Blue Cross Blue Shield organizations.

According to the Congressional Budget Office, Reid's bill, which merges separate bills from the Finance Committee and the Health, Education, Labor, and Pensions Committee, would cost an estimated $849 billion over 10 years.


Medicare tax hike and other revenue provisions

The merged bill calls for a 0.5 percentage point increase – from 1.45 percent to 1.95 percent – in the tax on Medicare wages, to be imposed on income in excess of $200,000 for singles and $250,000 for married couples. The increase would raise a reported $40 to 50 billion over 10 years. It would apply to wages received, and taxable years beginning, after December 31, 2012.

Significantly, a variation on this proposal that was rumored to be under consideration – expanding a portion of the Medicare tax to unearned income such as capital gains and dividends – is not included in the merged bill.

The new bill raises the threshold on the 40 percent excise tax levied on so-called "Cadillac" health plans proposed in the original Senate Finance Committee bill to $8,500 (from $8,000) for individual coverage and to $23,000 (from $21,000) for family coverage. Numerous senators had argued that the excise tax would adversely affect middle-income taxpayers, and leadership responded by raising the thresholds.

The merged bill also reduces the annual fee on medical device manufacturers and importers that was approved by the Finance Committee to $2 billion (from $4 billion). Other new provisions in the bill would:
- Limit the special deduction for Blue Cross Blue Shield organizations under section 833 in the case of organizations with a low medical loss ratio. This provision would be effective for taxable years beginning after December 31, 2009.
- Impose a tax on elective cosmetic surgery or medical procedures (equal to 5 percent of the amount paid for the procedure) whether or not an individual's health insurance company pays for the procedure. The provision would be effective for procedures performed on or after January 1, 2010.

The merged bill retains the other revenue offsets approved in the original Finance Committee bill – namely, a limit on executive compensation for health insurance providers, a corporate information reporting provision, new fees targeting health-related industries, and new reporting requirements for nonprofit hospitals.


Outlook

A vote to proceed to consideration of the measure may take place as early as November 20. It is unclear whether Majority Leader Reid intends to begin debate prior to the Thanksgiving recess, or postpone consideration to the week of November 30. (The Senate is currently slated to be out of session the week of November 23 for the Thanksgiving recess.)

Reid reiterated on November 11 his goal of completing floor action by the Christmas recess, but recognized that a final vote on a House-Senate conference package may not take place before early next year. For his part, Majority Whip Richard Durbin, D-Ill., all but conceded final passage of a conference report would likely fall after the Christmas recess, given the limited time left on the legislative calendar.

A White House spokesperson said November 5 that the administration has imposed a "deadline" of December 31 for completion of a joint health care bill in the House and Senate.