TAX NEWS - DECEMber 2009
Reid unveils health care manager's amendment with higher HI tax: momentum for Senate passage builds
Thirty hours later, in the early morning of December 21, the Senate by a party-line 60-40 vote, approved a procedural order that moves the legislation – H.R. 3590, the Patient Protection and Affordable Care Act – much closer to expected passage later this week.
The manager's amendment now has an overall cost of $871 billion over 10 years and would reduce the deficit by $132 billion during the same period, according to the Congressional Budget Office. The revised revenue package would raise $26.2 billion more than Reid's previous draft introduced in November for a total of $398.1 billion over ten years, according to the JCT.
Increase in hospital insurance tax
Notably, the amendment increases the HI tax for high-income earners ($200,000 for singles, $250,000 for joint filers) by .9 percentage points, up from the earlier proposed .5 percentage points. The income thresholds would not be indexed for inflation.
The change further places the responsibility of covering the cost of the legislation upon high-income individuals, making the Senate legislation more similar in concept to the House bill. (The House legislation levies a 5.4 percent surcharge on a similar group of taxpayers.) The latest Senate HI tax provision, formerly scored by the JCT at $53.8 billion, would raise an estimated $86.8 billion over 10 years – a 61 percent increase in revenue from the original version. The provision is effective for taxable years beginning after December 31, 2012.
The amendment also makes a range of other minor changes to the tax title including:
- Modifications to the excise tax on high cost employer-sponsored health coverage – The amendment would add longshoremen to the list of high-risk employees qualifying for the higher thresholds for imposing the excise tax. It clarifies that plans providing certain excepted benefits under IRC Section 9832(c) are not subject to the excise tax. The revised provision would raise $148.9 billion over ten years, slightly less than the $149.1 billion raised by the previous Senate draft.
- Medical device manufacturers' fee – The amendment would eliminate the fee for 2010 and establish the annual fee at $2 billion for the years 2011 through 2017 and $3 billion for years after 2017. The revised provision would raise $22.2 billion over ten years, unchanged from the previous draft.
- Health insurance providers' fee – The amendment would eliminate the fee for 2010 and remove third-party administration agreement fees from the allocation of the fee to health insurance providers. Further, it would establish the annual fee at $2 billion for 2011, $4 billion for 2012, $7 billion for 2013, $9 billion for years 2014 through 2016, and $10 billion for years after 2016. The amendment also would create a limited exemption from the fee for certain non-profit insurers with a medical loss ratio of 90 percent or more. The revised provision would raise $59.6 billion over ten years, slightly less than the revenue estimate of $60.4 billion of the previous draft.
- Individual mandate – The amendment would revise the individual mandate penalty. Individuals failing to obtain coverage equal to the bronze level plan would pay the greater of $95 or 0.5 percent of income in 2014, $495 or 1 percent of income in 2015, and $750 or 2 percent of income in 2016. The revised penalty would raise $15 billion over ten years compared to $8 billion under the previous draft.
- Expanded adoption tax credit – The amendment would increase the child adoption tax credit to $13,170 and extend it through 2011. The credit would be made refundable. The new provision would cost $1.2 billion over ten years.
- Inflation adjustment for Flexible Spending Account (FSA) contributions limitation – The amendment would provide inflation indexing, based on the CPI-U, for the $2,500 limit on contributions to a FSA for years after December 31, 2011. This change brings the flexible spending account limit provision in line with the House-passed language. The revised provision would raise $13.3 billion over ten years compared to $14.6 billion under the previous draft.
- Charitable hospitals limitation – The amendment would modify the limitation on the amount that can be charged by a charitable hospital for emergency or medically necessary care from the "lowest amount charged" to individuals who have insurance to "the amount generally billed."
- Excise tax on indoor tanning services – The amendment would impose a 10 percent tax on amounts paid for indoor tanning services, replacing the tax on cosmetic surgery included in the introduced bill. The tax would be effective for services on or after July 1, 2010. The provision would raise $2.7 billion over ten years.
- Small business tax credit – The amendment would accelerate the effective date of the small business tax credit from 2011 to 2010. It also expands the credit to firms with average wages between $25,000 and $50,000, up from $20,000 and $40,000. The expanded amendment would cost $40 billion over ten years, up from $27 billion in the previous draft.
- Annual tax on third-party administrators – The amendment would drop this tax.
Christmas Eve vote likely
The Senate is expected to hold a series of procedural votes this week, including one on this latest manager's amendment,
setting the stage for possible final passage of the health care reform legislation on Christmas Eve – Thursday, December 24.
The schedule will allow for a House and Senate conference to begin when Congress returns in January. A number of
significant differences between the reform plans of the chambers will have to be reconciled. The House is scheduled to
reconvene on Tuesday, January 12 while the Senate does not plan to return to Washington until a week later.
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