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TAX NEWS - DECEMber 2009

US Tax: Senate set for Saturday vote to begin debate on health care bill

Health care reform continues to inch forward in the Senate as lawmakers in that chamber prepare to vote November 21 on a motion to take up an $849 billion package that combines separate bills from the Finance Committee and the Health, Education, Labor, and Pensions Committee.

If Majority Harry Leader Reid, D-Nev., garners the necessary 60 votes on the motion to proceed, he intends to begin debate on the measure after lawmakers return from the Thanksgiving recess the week of November 30.

The Patient Protection and Affordable Care Act, which Reid unveiled November 18, makes some modifications to the revenue package approved by the Finance Committee in October - most notably by raising the policy value thresholds for the 40 percent excise tax on "Cadillac" group health policies and by adding a new proposed Medicare tax hike for certain high-income taxpayers.

Other changes to the Finance Committee revenue package would:

- Delay the effective date of the provision to conform the definition of medical expenses for health savings accounts, Archer medical savings accounts, and health flexible spending arrangements to the definition for purposes of the itemized deduction for medical expenses to December 31, 2010. (The Finance provision was effective after December 31, 2009.) The revised provision would raise $5 billion over 10 years according to the Joint Committee on Taxation (JCT) staff.

- Delay the effective date of a provision to require Employer W-2 reporting of the value of employee health benefits to December 31, 2010, one year later than proposed in the Finance bill. The provision has a negligible revenue impact.

- Make the employer and individual mandates effective after January 1, 2014, six months later than the Finance provision. Additionally, the individual penalty would be phased in more rapidly, but the penalty amount would be reduced. The merged bill also modifies the penalty structure for employers whose employees receive insurance through an exchange and adds a fee for employers that require a waiting period before employees can enroll in a company-sponsored health plan. The penalty on individuals would raise $8 billion and the penalty on employers would raise $28 billion over 10 years, according to the Congressional Budget Office.

All told, the revenue provisions in the merged legislation would raise $371.9 billion over 10 years, roughly $10 billion less the Finance-approved bill, according to JCT staff estimates.
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