TAX NEWS - January 2010

As Senate landscape shifts, Democrats rethink health care strategies

Republican Scott Brown's victory in the January 19 special election to fill the Senate seat formerly held by the late Edward Kennedy has left Democrats one vote shy of what had been a filibuster-proof majority in that chamber and has party leaders mulling new strategies to move comprehensive health care reform legislation. Should Congress ultimately devise an acceptable way of completing the legislation, it is still expected to include significant tax changes that could affect highincome individuals, health-related industries, businesses, and elements of existing health benefit plans.

As the new legislative session began, Democratic leaders had planned to resolve differences between the House- and Senate-passed bills behind the scenes and approve compromise legislation in the early months of 2010. Leaders had reportedly been nearing an agreement on critical revenue and coverage issues to be included in a compromise legislative package as late as last week.

But that strategy relied on Democrats maintaining the 60 votes they needed in the Senate to overcome the otherwise certain threat of a filibuster from Republicans, who had unanimously voted against the health care package that cleared the chamber on Christmas Eve. Brown's election, which now gives Senate Republicans 41 votes, has put a kink in those plans.


What's on – and off – the table

Congressional Democrats have discussed several options to move forward with health reform efforts. One that was posed early on was for Democratic leaders to expedite negotiations on the existing compromise agreement and force it through the House and Senate before Brown took office. But that idea was considered unrealistic given some of the as-yet unresolved differences between the House and Senate bills, and was also deemed politically unwise. Significantly, Senate Majority Leader Harry Reid, D-Nev., has indicated that his chamber will not act on health care until Brown is seated.


Other options under discussion so far include:

The House passing the Senate bill 'as is' – The House could consider and pass the Senate-approved bill and send it directly to President Obama for his signature. This option alone is unlikely, since House negotiators have repeatedly expressed discontent with the Senate's proposed excise tax on Cadillac plans, and with various nontax provisions in the bill. Further, House Speaker Nancy Pelosi, D-Calif., said January 21 that she does not believe the House has enough support to pass the Senate bill.

Invoking reconciliation – Congressional leaders have floated various options that would involve the use of the reconciliation process to pass a health care reform package that reflects the majority of what is contained in the House and Senate bills at this point. Bills moved under reconciliation are protected in the Senate from procedural roadblocks such as filibusters because the terms of debate are strictly limited and passage requires a simple majority vote. (Senate rules normally require 60 votes to end a filibuster and bring a bill to the chamber floor for final approval.) Under one scenario, the House would approve the Senate-passed bill, and also pass a separate reconciliation measure containing changes to the Senate bill that have been negotiated over the past month. The Senate would then need to approve the reconciliation bill, which would require only 51 votes, making it easier to pass once Senator-elect Brown is seated.

One significant drawback to this option is that a reconciliation bill is prohibited from containing any provision that does not have a budgetary effect, effectively disqualifying various policy provisions that have been discussed over the past month from being included. Nevertheless, Senate Majority Leader Reid has indicated that reconciliation is an option for moving health care reform forward.

Starting over – A third option available to congressional leaders would be to restart the drafting process and craft a significantly tailored bill that contains a variety of relatively noncontroversial items and shared priorities that could more easily pass muster in the Senate. Examples include insurance market reform, efforts to assist small businesses, and changes to the Medicare system. This option seems to be gaining traction, as President Obama on January 20 called on Democrats to "coalesce" around specific provisions that have widespread support. House Majority Leader Steny Hoyer, D-Md., agreed, saying a new bill is a "reasonable alternative."

The size and shape of a tax package that could accompany a smaller health bill remains to be seen. Even if a new bill is substantially narrower in scope, it still may include significant tax increases to pay for subsidies for lower-income individuals to purchase insurance and significant Medicare expenditures. In the absence of individual or employer mandates, the proposed tax increases in the House and Senate bills still would be in play.


State of the Union may provide details

The administration announced this week that President Obama will deliver his annual State of the Union address to a joint session of Congress on January 27. His remarks could provide valuable details as to how Congress will attain its goal of completing health care reform legislation given the changing political landscape in Washington.