H.R. 4872: Senate Democrat Health Care Takeover and the Reconciliation Act of 2010

H.R. 4872

Senate Democrat Health Care Takeover and the Reconciliation Act of 2010

Sen. Bernard Sanders

March 21, 2010 (111th Congress, 2nd Session)

Staff Contact

Floor Situation

On Sunday, March 21, 2010, the House is scheduled consider H.R. 4872, the Reconciliation Act of 2010, under a rule that, according to press reports, would provide for two separate votes.  The first vote would be on the Reconciliation Act of 2010 (which includes so-called "fixes" to make the bill palatable to House Democrats) and the second would be a vote on the Senate health care takeover bill (H.R. 3590)-including all of the special deals and kickbacks used to leverage votes from Senators.  According to reports, the rule would provide for two hours of debate on the reconciliation bill.  If that bill passes, the House would proceed to a vote on the Senate health care takeover.  If the Senate bill passes the House, it would immediately proceed to the president to be signed and become law, regardless of the status of the reconciliation bill.



There is, however, no assurance whatsoever that the Senate will pass the reconciliation bill as is or take any action on the bill at all.  In fact, on March 18, 2010, HRoll Call reportedH that Senate Budget Chairman Kent Conrad (D-N.D.) said, "that it is unlikely the Senate will be able to pass a health care reconciliation bill unchanged from what the House passes."  In addition, the history of reconciliation legislation suggests that this is highly unlikely that the bill will be passed as is, especially given the fact that 41 Republican Senators have already HpledgedH to reject all "Byrd Rule" violations.  In fact, of the 22 times Congress has considered reconciliation legislation since 1980, there has only been a single instance where the Senate has not somehow amended the reconciliation bill, and thus required further House action.  The lone exception was the Omnibus Reconciliation Act of 1983.

The rule also includes the Manger's Amendment, which would be self-executed with the passage of the rule.  The Manager's Amendment would make a number of changes to the bill.  The amendment would include $13.5 billion in mandatory Pell Grants funding, lower the brand name pharmaceutical tax by $800 million over the next eight years, and provides $400 million in payments for "qualified hospitals."  The amendment would also reduce the tax rate on medical devices from 2.9 percent to 2.2 percent, but expands the kinds of medical devices subject to the tax by including Class I Medical devices, such as bandages, tongue depressors, and bedpans.  In addition, the amendment also makes a number of timing shifts for certain sections of the bill, reduces the growth of the true out-of-pocket threshold for the Medicare prescription drug benefit, strikes a section of the bill related to state-owned banks, commonly known as the Bismarck Bank Job.


Title I-Coverage, Medicare, Medicaid, and Revenues


Increased Subsidies:  The bill would increase subsidies for health coverage, offered as refundable tax credits payable directly to insurance companies.  Specifically, H.R. 4872 raises premium subsidy levels for those with incomes between 133-150 percent of the federal poverty level, and those between 250-400 percent.   Individuals with incomes between 300-400 percent of the poverty level would be forced to pay 9.5 percent of their adjusted gross income on health insurance, instead of 9.8 percent in the Senate bill.  The federal share of cost-sharing would also be increased for individuals with income of between 133-250 percent of FPL.

The bill would also revise the income definitions in the Senate bill, using "modified adjusted gross income" instead of "modified gross income" for purposes of determining subsidy eligibility, and permitting states an income disregard of 5 percent of income with respect to determining Medicaid eligibility.  However, the bill also includes an additional adjustment and trigger mechanism after 2018 to slow the growth of the premium subsidy levels.  The Congressional Budget Office has stated that "over time, the spending on exchange subsidies would therefore fall back toward the level under H.R. 3590 by itself."

Individual Mandate:  Modifies the penalty for not having health insurance from $750 or 2 percent of income to $695 or 2.5 percent of income.  This provision would raise $2 billion more in revenue relative to the Senate bill.

Increased Employer Mandate:  The bill would increase the penalty for businesses that do not offer health insurance and have at least one employee receiving a subsidy in the exchange from $750 per full time employee to $2,000 per full time employee.  The first 30 workers are disregarded in calculating the penalty.  The bill would strike the small business exemption carve-out for the construction industry.  This provision raises $25 billion more relative to the Senate bill. 

Implementation Funding:  The bill would provide $1 billion in new mandatory spending in a "Health Insurance Reform Implementation Fund" created within the Department of Health and Human Services.

Medicare Part D "Doughnut Hole":  H.R. 4872 would provide a $250 rebate for 2010 for any Medicare beneficiary who enters the prescription drug coverage gap.  The bill also postpones the start of the prescription drug "discount" program created in the Senate bill by six months, until January 1, 2011.  The bill would start a process of closing the "doughnut hole" beginning in 2011; however, that gap will not be filled until 2020-outside the ten-year budget window.  Some Members may be concerned that this delay is a budgetary gimmick to mask the true cost of this new entitlement.

Medicare Advantage Cuts:  The bill cuts Medicare Advantage, phasing in a new system of blended benchmarks.  Benchmarks would be phased in beginning in 2012, and are based on overall levels of Medicare spending, with low-cost areas receiving up to 115 percent of traditional Medicare spending and high-cost areas receiving 95 percent of traditional Medicare spending.  Benchmarks are phased in over longer periods in areas currently receiving MA rebates. The bill would also establish a new mechanism to increase payments to "high-quality" MA plans, even though traditional Medicare does not base its payments on quality measures.  H.R. 4872 would require MA plans to spend at least 85 percent of their premium costs on medical claims, and directs rebates from plans not meeting that threshold into a management account at CMS.

Other Medicare Cuts:  The bill would begin reductions in Medicare disproportionate share hospital (DSH) payments in 2014, rather than 2015 in the Senate bill, but lessens the overall impact of DSH reductions by $3 billion through 2019.  The bill also accelerates and expands changes in the Senate bill regarding the presumed increase in utilization rates for imaging services, resulting in an additional $1.2 billion in savings.

Physician Self-Referral:  H.R. 4872 would extend from August 1, 2010, to December 31, 2010, the implementation of a ban on new physician-owned hospitals included in the Senate bill and adds a limited exception to growth caps on existing physician-owned facilities for those hospitals that treat the largest number of Medicaid patients in their county.

Medicaid Funding:  The bill amends the Senate legislation to "fix" the "Cornhusker Kickback," so that all states would have 100 percent of their Medicaid expansion costs paid in 2014 through 2016, 95 percent in 2017, 94 percent in 2018, 93 percent in 2019, and 90 percent in 2020 and future years.  Members may be concerned that these provisions leave states responsible for tens of billions in unfunded liabilities through 2019-sums that will only grow in the years outside of the budget window.

The bill provides for a five-year transition period in 2014-2018 for "expansion states" that have already broadened their Medicaid programs to include the populations (namely, childless adults) covered under the Senate bill.

H.R. 4872 would provide an increase in Medicaid reimbursement levels to the prevailing Medicare rates in each Medicare fee schedule area, fully funded by the federal government-but only for years 2013 and 2014.  Members may be concerned that this "cliff" in the years following 2014 is a budgetary gimmick to mask the bill's true cost.  The bill would also further reduce Medicaid disproportionate share hospital (DSH) payments beyond those included in the Senate bill, and establishes a payment methodology whereby the largest DSH reductions would be imposed on the states with the largest reduction in the number of uninsured individuals.  The bill provides special language increasing DSH allotments for Tennessee, which may concern Members that it is a special deal designed to win the votes of Tennessee Members.

Fraud and Abuse:  The bill would re-define "community mental health centers" within Medicare, and repeals a section of the Medicare statute related to Medicare prepayment medical review.  H.R. 4872 authorizes the disclosure of information regarding seriously delinquent tax debts to the Centers for Medicare and Medicaid Services (CMS), and requires CMS to consider such information in reviewing provider enrollment applications and reimbursing Medicare providers.  The bill includes a total of $250 million in new funding for the Health Care Fraud and Abuse Control Fund, and links future increases in funding for the Medicaid Integrity Program to consumer price inflation.  The bill also provides for a 90-day period of enhanced oversight of the initial claims of durable medical equipment (DME) providers in cases deemed a significant risk of fraud.

Tax Increases

Decrease in high-cost plans excise tax:  The bill would delay the effective date of the high-cost plans tax from 2013 to 2018, raise the thresholds for what qualifies as a high-cost plan to $10,200 for singles and $27,500 for families.  The bill would include a carve-out for multiemployer plans that generally cover unionized firms that allows single employees to qualify for higher the family threshold.   

New Medicare HI tax on investment income:  The bill would impose a 3.8 percent tax, transferred to the Medicare Trust Fund, on investment income for singles earning over $200,000 and families earning over $250,000.  The bill would exempt active income from certain business ownership stakes and expenses and distributions from retirement plans.  These thresholds are not indexed for inflation, so an ever increasing number of Americans would become subject to these investment and wage taxes over time. 

Flexible Spending Accounts:  The bill would delay the effective date of the $2,500 cap on flexible spending accounts from 2011 to 2013. 

Increased Tax on Pharmaceutical Industry:  The bill would delay the effective date of the pharmaceutical tax one year to 2011, increases the annual fee within the budget window to $4.2 billion in 2018, and increases the per-year fee in perpetuity to $2.8 billion.

Increased Tax on Medical Device Manufacturers:  The bill would change the annual fee with a set dollar amount to an excise tax on medical device sales at 2.9 percent of the price of the device, delayed until 2013.

Increased Fees on Health Insurers:  H.R. 4872 would delay the effective date on the net premiums for the insurance company tax from 2010 to 2014, provide an exclusion for certain non-profit insurers and voluntary employees' beneficiary associations, and increase the annual fee to $14.3 billion in 2018, increasing thereafter annually based on premium growth.

Delay of Elimination of Deductible Part D Subsidy:  The bill would end the deduction for the Medicare Part D subsidy two years later-in 2013. 

Eliminates Credit for "Black Liquor":  The bill would prevent a byproduct from paper production known as "black liquor" from qualifying for the cellulosic biofuels tax credit. 

Title II - Education and Health

Federal Pell Grants:  The bill would provide mandatory funding to increase the maximum Pell Grant to $5,500 in 2010 with progressive increases up to $5,975 by 2017.  Beginning in 2013, Pell Grant increases would be indexed to inflation using the Consumer Price Index.  CBO estimates this provision would cost $22.6 billion over 10 years.

College Access Challenge Grant Program:  The bill would provide mandatory funding in the amount of $750 million over five years for the College Access Challenge Grant Program which promotes partnerships between federal, state, and local governments and philanthropic organizations through grants that are intended to increase the number of low-income students who are prepared to enter and succeed in postsecondary education.

Historically Black Colleges and Universities:  The bill would provide mandatory funding in the amount of $2.55 billion for Historically Black Colleges and Universities through the end of Fiscal Year 2019.

Termination of Federal Family Education Loan Appropriations:  The bill would ensure that no funds expended after June 2010 to support new lending activity in the Federal Family Education Loan program and shift all new loans to the federally-run Direct Loan program. 

Federal Consolidated Loans:  The bill would give temporary authority for certain borrowers who are still in school to consolidate their loans into a Direct consolidation loan.  The goal of this provision is to ensure students have one servicer of their loans which could be split between the FFEL and Direct Loan program after the transition.  CBO predicts that this provision will cost $40 billion.

Contracts, Mandatory Funds:  The bill would provide mandatory funds and require the Secretary of Education to award contracts to non-profit loan servicing agencies.  Each eligible agency would be given a maximum of 100,000 student loans to service initially. Specifically, the bill provides $50 million for the Department of Education to provide technical assistance to institutions of higher education so they can switch from FFEL to DL. 

Agreements with State Owned Banks:  H.R. 4872 would allow banks that are guaranteed by a state, owned by a state, under the control of a board of directors that includes the Governor, and originates or holds loans under the FFEL program prior to July 1, 2009 to continue to provide federally guaranteed loans to students who are residents of that state or are attending an institution of higher education in that state.  Members may be concerned that the only bank that currently meets this definition is the Bank of North Dakota.

Income Based Repayment:  Beginning on July 1, 2014, the bill would expand the existing income-based repayment program which limits the percentage of an individual's income that goes to student loan repayment, as well as the length of time they have to pay off the loan.  The provision would decrease the limit on loan payments from 15 percent to 10 percent of individual income and forgive loans after 20 years rather than 25 years.  CBO estimates this provision would cost $1.5 billion over ten years.

Insurance Reforms:  The bill applies to all "grandfathered" health plans provisions in the Senate bill regarding excessive waiting periods before becoming eligible for employer-based insurance, lifetime limits on benefits, rescissions, and coverage of dependents, and clarifies that only non-married dependents may remain on their parents' insurance policies until turning 26.  These provisions would raise premiums.

Community Health Centers:  The bill amends the Senate legislation to increase mandatory funding for community health centers by $2.5 billion.  Members may be concerned that neither the reconciliation bill nor the Senate-passed measure include any prohibition on community health centers using these federal funds to offer elective abortion.

Cost and Other Concerns

According to the Congressional Budget Office (CBO), the reconciliation bill, when combined with the Senate bill, would spend a total of $940 billion on coverage expansions.  However, this figure excludes other non-coverage spending: $93.9 billion in related mandatory health spending in the Senate bill, $50.3 billion in mandatory health spending in the reconciliation bill, $41.6 billion in mandatory education spending in the reconciliation bill, and at least $70 billion in discretionary spending included in the Senate bill, bringing the total cost in the bill's first 10 years to $1.2 trillion.  Despite Democrats claims that the bill would reduce the deficit, CBO said in a letter to House Budget Committee Ranking Member Paul Ryan that with the $208 billion to patch the Sustainable Growth Rate (SGR) to prevent reduction in Medicare physician payments, the legislation would result in a $59 billion deficit.  This cost is hidden because it was included in the earlier Democrat bill, but was dropped to provide a better cost estimate.  It is expected to move separately and would bring the true cost of the takeover to $1.4 trillion.  Moreover, Republican staff on the Senate Budget Committee estimate that the total spending in the Senate bill's first 10 years of full implementation (fiscal years 2014-2023) would total $2.4 trillion. 

To pay for the additional spending on subsidies and education spending, the reconciliation bill would raise taxes by an additional $50 billion, and reduces Medicare spending by $60.5 billion.  The reconciliation bill and the Senate bill impose Medicare Advantage cuts totaling $202.3 billion.  Tax increases include $25 billion in additional revenue from the employer mandate, $23.6 billion from removing "black liquor" from the cellulosic biofuels tax credit, $123.4 billion from the new Medicare taxes on investment income-all offset by a $119 billion reduction in revenue from the "Cadillac tax" delay. 

The bill also includes $67 billion in savings from the abolition of the FFEL program, which is channeled into $41 billion in new education spending and $19 billion in new health care mandatory spending.  H.R. 4872 also includes a reconciliation provision to alter federal student loan programs by eliminating the Federal Family Education Loan program and shifting all student loans to a government-run and taxpayer financed system under the Direct Loan program.  While this legislation has nothing to do with the government takeover of health care, the provision is scored as a deficit reduction of $19.4 billion because it moves student lending money into the hands of the federal government.  That money is then used as an offset against the $1 trillion cost of the legislation.  However, CBO has also noted that current budget scoring rules do not include the cost to the government stemming from the risk that the cash flows may be less than the amount projected (that is, that defaults could be higher than projected).  Due to this market risk assessment, CBO reported that it could actually cost taxpayers billions more than Democrats have acknowledged.

Combined with the Senate bill, the legislation includes $569.5 billion in tax increases, of which $48.9 billion in new tax increases are included in the reconciliation bill alone.  The bill includes 12 new tax increases in the bill that violate President Obama's pledge that, "Under my plan, no family making less than $250,000 a year will see any form of tax increase."  In addition, 46 percent of the individual mandate tax would be paid by families making less than $66,150 annually.


Buried within the contents of the more than 2,000 page bill-as well as the separate 383-page manager's amendment, and a 276 page Indian Health Care reauthorization that would be enacted by reference-are details that would see a massive federal takeover of the health care system in America, including the following:

  • A new regime of government-run exchanges that would cause as many as 10 million Americans to lose their current employer-sponsored coverage-thus breaking the central promise of then-Senator Obama's presidential campaign;
  • An increase in total national health spending, as well as an increase in premiums that could total $2,100 per year-a far cry from then-Senator Obama's promise to lower costs for families by $2,500 annually;
  • Stifling insurance regulations that would raise premiums and encourage employers to drop coverage;
  • Trillions of dollars in new federal spending that would exacerbate the deficit and imperil the nation's long-term fiscal solvency;
  • A board of unelected bureaucrats being empowered to re-write Medicare statutes in a way that could well lead to government rationing of health care;
  • Federal funding of insurance policies that cover elective abortion-and an unprecedented federally managed plan that would cover elective abortion procedures;
  • Tens of billions in unfunded mandates in the form of a massive Medicaid expansion that would compel all states-except Nebraska-to dedicate more scarce taxpayer resources to fund government-run health coverage in their states-or alternatively to drop Medicaid entirely;
  • Taxes on all Americans-individuals who purchase insurance, individuals who do not purchase insurance, and small and large businesses alike-that would kill jobs and raise premiums; and
  • Cuts to Medicare Advantage plans that would result in higher premiums and dropped coverage for more than 10 million seniors.

Summary of Key Provisions

Creation of Exchange:  The bill requires States to create their own Health Benefit Exchanges.  Uninsured individuals would be eligible to purchase an Exchange plan, as would those whose existing employer coverage is deemed "insufficient" by the federal government.  Employees with an "unaffordable" offer of group coverage would be able to take the value of their employer's contribution in the form of a tax-free voucher to shop for plans on the Exchange.  The bill allows states to open Exchanges to all employers beginning in 2017, further expanding the scope and reach of the government-run Exchanges. 

Benefit Standards:  The bill establishes a process for the Secretary of Health and Human Services to impose benefit standards for all plans.  Plans in the Exchange would fall into several tiers: bronze (covering 60 percent of anticipated expenses), silver (70 percent), gold (80 percent), and platinum (90 percent).  A young adult plan offering streamlined benefits would also be available, but only to individuals under aged 30.  Employer plans-including those with Health Savings Accounts-could impose maximum deductibles of $2,000 for an individual or $4,000 for a family.  These onerous standards would hinder the introduction of innovative models to improve enrollees' health and wellness-and by insulating individuals from the cost of health services with restrictive cost-sharing, could raise health care costs. 

"Low-Income" Subsidies:  The bill provides subsidies only through the Exchange, again putting private health plans at a disadvantage.  Individuals with access to employer-sponsored insurance whose group premium costs exceed 9.8 percent of modified gross income would be eligible for subsidies.  Some may note that the newly defined "modified gross income" (as opposed to adjusted gross income) excludes deductions for items like contributions to Individual Retirement Accounts (IRAs) or Health Savings Accounts (HSAs), thus imposing an effective tax on savings.

Premium subsidies provided would be determined on a sliding scale.  Individuals with incomes above 133 percent of the Federal Poverty Level (FPL, $29,327 for a family of four in 2009) and thus ineligible for the Medicaid expansion would be able to receive subsidies, which would phase out entirely for individuals with incomes at 400 percent FPL ($88,200 for a family of four), who would be expected to pay 9.8 percent of their income.  Many may also note that, because the definition of FPL for a couple is not twice the size of the poverty level for a single person, the bill creates a marriage penalty-meaning that married couples may lose hundreds, even thousands, of dollars in health insurance subsidies.

The bill further provides for cost-sharing subsidies, such that individuals with incomes under 100 percent FPL would have two-thirds of their cost-sharing covered for a platinum level plan, while individuals with incomes at 400 percent FPL would have one-third of their cost-sharing covered for a silver plan.  These rich benefit packages, in addition to raising subsidy costs for the federal government, would insulate plan participants from the effects of higher health spending, resulting in an increase in overall health costs-exactly the opposite of the bill's purported purpose.

"Fannie Med" Co-Operatives and National Plan:  The bill as amended requires the Office of Personnel Management (OPM) to "offer at least two multi-State qualified plans through each Exchange in each State."  The bill requires that at least one insurance plan option offered be a non-profit entity.

The bill establishes a Consumer Operated and Oriented Plan (CO-OP) program to provide grants or loans for the establishment of non-profit insurance cooperatives to be offered through the Exchange, but does not require states to establish such cooperatives.  The bill authorizes $6 billion in appropriations for start-up loans or grants to help meet state solvency requirements. 

Many may be concerned that both the OPM federally sanctioned plans and cooperatives funded through federal start-up grants would in time require ongoing federal subsidies, and that a "Fannie Med" co-op would do for health care what Fannie Mae and Freddie Mac have done for the housing sector.  Some may also note that former OPM Director Linda Springer has publicly expressed concern that her former office lacks the capacity to oversee such a project in the manner that it currently oversees the Federal Employee Health Benefits Program (FEHBP).

Medicaid Expansion:  The bill would expand Medicaid to all individuals with incomes under 133 percent of the federal poverty level ($29,327 for a family of four).  Under the bill, the expansion of Medicaid to more than 10 million individuals would be fully paid for by the federal government only through 2016-thus imposing billions in unfunded mandates on 49 states

However, as part of the "compromise" negotiated by Leader Reid, one State-Nebraska, home of Sen. Ben Nelson-would have 100 percent of its Medicaid costs paid in perpetuity.  Given public comments by Senate HELP Committee Chairman Tom Harkin (D-IA) that such a precedent could eventually lead to the federal government paying 100 percent of all Medicaid costs for all states.

Federal Funding of Abortion Coverage:  The bill specifically permits taxpayer subsidies to flow to private health plans that include abortion, but creates an accounting scheme designed to designate private dollars as abortion dollars and public dollars as non-abortion dollars.  Specifically, the provisions claim to segregate public funds from abortion coverage and would allegedly prevent funds used on abortion from being considered when determining whether plans meet federal actuarial standards.  However, the accounting scheme has likewise been rejected by pro-life organizations, which recognize it as a clear departure from long-standing federal policy against funding plans covering abortion (e.g., Federal Employee Health Benefits Program, Medicaid, SCHIP, etc.). 

Unlike government-run programs like Medicare and Medicaid, which can specifically prohibit coverage of a particular service, funds provided to a third-party insurance company to subsidize an individual's coverage would by definition make that individual's "supplemental" abortion coverage more affordable.  Therefore many Members may believe that the only way to prevent federal funds from subsidizing abortion coverage is to prevent plans whose beneficiaries receive federal subsidies from covering abortions. 

The bill would require plans to follow "generally accepted accounting requirements" while establishing the regime.  The bill also allows States to "prohibit abortion coverage in qualified health plans" offered in their State's Exchange.  However, these provisions would still result in federal funds flowing to plans that cover elective abortions-and would not prohibit citizens in States which have opted-out of elective abortion coverage in their own Exchange seeing their federal funds flow to plans that cover elective abortion in other States.  To that end, even pro-life Democrats like Rep. Bart Stupak (D-MI) have criticized the bill language as unacceptable, and a far cry from the standards established in the Stupak amendment-which extended the current law Hyde Amendment prohibitions on federal funding for abortion coverage-that passed on a strong bipartisan vote in the House.

Further, the "Fannie Mae" model administered through OPM created by the manager's amendment contains zero prohibition on coverage of elective abortion-an unprecedented federal sanctioning of plans that cover elective abortions.  To that end, many may note that insurance plans within the FEHBP-which Members of Congress themselves utilize-have been prohibited from offering abortion coverage since 1995, and federal employees have expressed strong satisfaction with their choice of plan options.

Medicare Payment Board:  The bill would create a new Independent Medicare Advisory Board established to make recommendations about the future growth of Medicare spending.  The appointed bureaucrats would be required to submit recommendations to Congress to keep Medicare spending below targeted levels-and such recommendations would be legally binding absent legislative action by Congress. 

Particularly given the controversy surrounding the recent recommendations by the US Preventive Services Task Force with respect to mammogram coverage, many may be concerned that the Medicare Board contemplated by the legislation could result in additional coverage decisions being made by unelected bureaucrats largely or exclusively on cost grounds.  Moreover, many may be concerned that in time this provision could closely resemble a concept advocated by former Senator Tom Daschle-a board of unelected bureaucrats making health care decisions for all health plans nationwide, including decisions about which therapies and treatments the federal government will cover.  In his book Critical, Daschle wrote that, "We won't be able to make a significant dent in health-care spending without getting into the nitty-gritty of which treatments are the most clinically valuable and cost-effective."

Funneling Patients into Government Care

Federal Insurance Restrictions:  The bill imposes new regulations on all health insurance offerings, with only limited exceptions.  The bill imposes price controls on insurance offerings, requiring insurers with a ratio of total medical expenses to overall costs (i.e. a medical loss ratio), of less than 80 percent in the individual and small group market, or 85 percent in the large group market, to offer rebates to beneficiaries.  Some Members may be concerned that government-imposed price controls, by requiring plans to pay out most of their premiums in medical claims, would give carriers a strong disincentive not to improve the health of their enrollees through prevention and wellness initiatives-as doing so would reduce the percentage of spending paid on actual claims below the bureaucrat-acceptable limits.  The bill would also "require health plans...to submit a justification for any premium increase" in advance, and permit Exchanges to reject bids by insurance companies with "excessive" (term undefined) price increases-thus permitting bureaucrats to exercise arbitrary controls over health insurance companies.

Existing policies could remain in effect-but only so long as an individual does not move, change jobs, or experience any other material change in life status.  Contrary to President Obama's repeated promises that "You will not have to change [health insurance] plans," CBO found that "relatively few non-group policies would remain grandfathered by 2016"-meaning millions of individuals would lose their current individual health insurance plans as a result of Democrats' government takeover of health care.

Mandates on Employers; "Fair Share" Penalties:  The bill imposes a series of mandates related to  employers offering health insurance coverage.  Specifically, the bill taxes large employer plans (i.e. with more than 50 workers) that impose long "waiting periods" of over 30 days on coverage eligibility up to $600 per full-time employee.  The bill also taxes large employers who do not offer coverage, or who offer coverage that results in employees obtaining subsidies because that coverage costs more than 9.8 percent of modified gross income, to pay taxes.  The penalty in the first instance is $750 per employee, and in the second instance constitutes $3,000 per employee receiving subsidies, or $750 per worker, whichever is less.

Members may be concerned that the "fair share" penalties would most adversely affect those workers whom health "reform" is intended to help.  For instance, the taxes would discourage employers from hiring married individuals or parents raising children-as such individuals would be more likely to qualify for subsidies, thus triggering penalties.  In particular, single parents would be much more likely to qualify for insurance subsidies based upon their income, making it much less likely that such workers would be hired.  The liberal Center for Budget and Policy Priorities also previously noted that the provisions "likely would have discriminatory racial effects on hiring and firing.  Because minorities are much more likely to have low family incomes than non-minorities, a larger share of prospective minority workers would likely be harmed."

Individual Mandate:  The bill places a tax on individuals who do not purchase "minimum essential coverage," as defined by the bureaucratic standards in the bill.  The tax would constitute 2 percent of adjusted gross income, up to the amount of the national average premium for bronze plans offered through the Exchange.  The tax would not apply to non-resident aliens, those exempted on religious grounds, individuals for whom coverage is "unaffordable" (i.e. costing more than 8 percent of modified gross income), and those with short (i.e. fewer than three month) gaps in coverage.  "Acceptable coverage" includes qualified Exchange plans, "grandfathered" individual and group health plans, Medicare and Medicaid plans, and military and veterans' benefits.  But the bill omits protections for military health plans that were included in the House bill.  Specifically, the Senate language does not appear to give the Department of Veterans' Affairs (VA) health care system specific protection from interference by other government agencies administering the various authorities contained in the massive bill, as it pertains to "minimum essential coverage."  The final bill would leave it up to a bureaucrat at the Department of the Treasury to determine whether TRICARE meets the minimum standards under the Democrats' individual health insurance mandate.

For individuals with incomes of under $100,000, the cost of complying with the mandate would be under $2,000-raising questions of how effective the mandate would be, as paying the tax would in many cases cost less than purchasing an insurance policy.  As then-Senator Barack Obama pointed out in a February 2008 debate, in Massachusetts, the one State with an individual mandate, "there are people who are paying fines and still can't afford [health insurance], so now they're worse off than they were.  They don't have health insurance and they're paying a fine."

Medicare Advantage:  The bill would phase in a system of Medicare Advantage (MA) competitive bidding over a three-year period beginning in 2012.  The bill also imposes an arbitrary adjustment on MA payment benchmarks as part of the competitive bidding process.  Many may note that despite its title, traditional Medicare would not be required to compete head-to-head against private health plans in MA "competitive bidding"-thus giving government-run Medicare an advantage.  The Congressional Budget Office has stated that these provisions would collectively cut $120 billion from Medicare Advantage, and would result in millions of seniors losing access to their current plans, and/or having the extra benefits-reduced cost-sharing, dental and vision coverage, etc.-that MA plans provide curtailed or eliminated entirely.

The bill also gives the Secretary blanket authority to reject "any or every bid by an MA organization," as well as any bid by a carrier offering private Part D Medicare prescription drug coverage, giving federal bureaucrats the power to eliminate the MA program entirely-by rejecting all plan bids for nothing more than the arbitrary reason that an Administration wishes to force the 10 million beneficiaries enrolled in MA back into traditional, government-run Medicare against their will.

Tax Increases

Government-Forced Insurance Penalties:  Offsetting payments to finance the government takeover of health care would include taxes on individuals not complying with the mandate to purchase coverage, as well as taxes by businesses associated with the "fair share" penalties, as outlined above.  The mandates would raise $15 billion and $28 billion respectively over ten years.

"Cadillac" Tax on High-Cost Plans:  The bill imposes a 40 percent excise tax on the excess cost of employer-sponsored plans above threshold amounts.  In 2013, the threshold amounts would be $8,500 for an individual policy and $23,000 for a family policy.  Individuals in certain "high-risk professions" would be subject to a higher threshold, and the 17 states with the highest costs (as determined by the average employer-sponsored insurance premium) would see the threshold amounts phased in during the years 2013-2015.  In future years the threshold amount would be raised for inflation at the rate of general price inflation (i.e. Consumer Price Index) plus one percent-which based on past trends would imply that the "Cadillac" tax would hit more plans over time.  According to the Joint Committee on Taxation, the provisions would raise $148.9 billion over ten years.

While some Members may support reforming the current tax treatment of health insurance, many may oppose the bill's model of raising taxes to finance a government takeover of health care.  Many may also note that the bill applies a standard 40 percent tax on all plans regardless of the purchaser's income-potentially subjecting millions of low-income and middle-class families with employer-sponsored coverage to tax rates exceeding the highest marginal rate under current law.

Higher Payroll Taxes:  The bill imposes a 0.9 percent increase in Medicare payroll taxes on individuals with incomes over $200,000 and families with incomes over $250,000, raising $86.8 billion over ten years.  The tax is NOT indexed for inflation, meaning it would affect many more taxpayers over time.  In addition to being administratively burdensome-as individual employers would have to base tax withholding in part on the salary of an employee's spouse-many may be concerned about the precedent set for diverting Medicare payroll taxes in a way that finances a $2.5 trillion new entitlement scheme for younger Americans.

Taxes on Health Plans:  The bill prohibits the reimbursement of over-the-counter pharmaceuticals from Health Savings Accounts (HSAs), Medical Savings Accounts, Flexible Spending Arrangements (FSAs), and Health Reimbursement Arrangements (HRAs), and increases the penalties for non-qualified HSA withdrawals from 10 percent to 20 percent, effective in 2011.  Because these savings vehicles are tax-preferred, adopting these provisions would raise taxes by $6.3 billion over ten years, according to the Joint Committee on Taxation.

The bill would place a cap on FSA contributions, beginning in 2012; contributions could only total $2,500 per year, subject to annual adjustments linked to the growth in general (not medical) inflation. Members may be concerned that these provisions would first raise taxes by $13.3 billion, and second-by imposing additional restrictions on health savings vehicles popular with tens of millions of Americans-undermine the promise that "If you like your current coverage, you can keep it."  At least 8 million individuals hold insurance policies eligible for HSAs, and millions more participate in FSAs.  All these individuals would be subject to additional coverage restrictions-and tax increases-under this provision.

The bill raises the threshold to itemize health expenses from 7.5 percent to 10 percent of adjusted gross income, beginning in 2013; seniors over age 65 would receive a four-year extension of the 7.5 percent income threshold for four additional years (i.e. until 2017).  This provision would raise taxes by $15.2 billion.  The bill also repeals the current-law tax deductibility of subsidies provided to companies offering prescription drug coverage to retirees, raising taxes by $5.4 billion.  Many may be concerned that this provision would lead to companies dropping their current coverage as a result. 

Taxes on Health Products:  The bill would impose several health-related excise taxes: a $2.3 billion tax on drug makers (raises $22.2 billion over ten years), an annual fee on medical device makers rising to $3 billion (raises $19.2 billion), and a tax on insurance companies that rises to $10 billion annually in  beginning in 2011, raising taxes by $59.6 billion.  Many may echo the concerns of the Congressional Budget Office, and other independent experts, who have confirmed that these taxes would be passed on to consumers in the form of higher prices-and ultimately higher premiums.

Taxes on Insurance Industry Executives:  The bill would cap the deductibility of insurance industry executive salaries at $500,000 beginning in 2013, raising $600 million.  Many may question why the insurance industry-alone among health care industries, or indeed all industries-warrants such treatment, and whether or not this provision constitutes an attempt to extract political retribution on a particular industry out of favor with Democrats.



Cost:  According to the Congressional Budget Office's Hpreliminary scoreH of H.R. 3590, the legislation would spend nearly $1 trillion over its first ten years.  More specifically, CBO estimates that the bill would spend $871 billion to finance coverage expansions-$395 billion for the Medicaid expansions, $436 billion for "low-income" subsidies, and $40 billion for small business tax credits.  The spending on coverage expansions does not even include additional federal spending included in the legislation-including a new reinsurance program for retirees, $10 billion in mandatory spending on community health centers, closing the Medicare Part D "doughnut hole," and a $13 billion trust fund for public health-that totals $95.5 billion.  When combined with the cost of the coverage expansions, total spending under the bill actually approaches $1 trillion.

In its score, CBO notes that "under the legislation, federal outlays for health care would increase during the 2010-2019 period, as would the federal budgetary commitment to health care"-by a total of $200 billion over that ten year period.  Many may be concerned that spending at least $1 trillion to finance a government takeover of health care would not only not help the growth in health costs, but-by creating massive and unsustainable new entitlements-would also make the federal budget situation much worse.

Savings would come from reductions within the Medicare program, of which the biggest are cuts to Medicare Advantage plans (net cut of $119.9 billion), reductions in adjustments to certain market-basket updates for hospitals and other providers (total of $147 billion), skilled nursing facility payment reductions (total of $23.9 billion), various reductions to home health providers (total of $39.4 billion), and reduction in imaging payments ($3 billion).  A further $35.7 billion in savings would come from reducing subsidies (i.e. means-testing) to Medicare Part D prescription drug plans for the first time, and from freezing the current annual adjustment to the Part B means test at its current level (i.e. $85,000 for a single retiree and $170,000 for a couple) until 2019.  A further $28.2 billion in savings is projected from the automatic reductions in Medicare spending expected to be triggered by the Independent Medicare Advisory Board during the years 2015-2019.

CBO has also HconfirmedH that the legislation as introduced would raise health care premiums for struggling middle-class families, resulting in non-group premium increases of $300 per year for individuals and $2,100 for families.  While the Obama campaign HpromisedH that its plan would reduce premiums by $2,500 per year for families, CBO confirmed that premiums would still continue to rise-and for millions, premiums would rise higher than under current law.

In terms of overall spending on health care costs, many may note that the independent actuaries at the Centers for Medicare and Medicaid Services found that H.R. 3590 would raise total national health spending by more than $200 billion between 2010-2019.  Many may cite this data point to question the effectiveness of Democrats' health "reform," given that the legislation was originally intended to reduce costs, not raise them.

Tax Increases:  Offsetting payments include $15 billion in taxes on individuals not complying with the mandate to purchase coverage, $149 billion from the "Cadillac tax" on high-premium insurance plans, $28 billion in payments by businesses associated with the employer "free rider" penalty, and $65 billion in associated other revenue interactions. 

The Joint Committee on Taxation notes that other bill provisions would increase federal revenues over and above the $257 billion in tax increases noted above.  JCT found that the increase in the Medicare payroll tax would raise $86.8 billion, corporate reporting would raise $17.1 billion, the worldwide interest implementation delay would raise $26.1 billion, the treaty withholding provisions would raise $7.5 billion, and the codification of the economic substance doctrine would raise $5.7 billion.  Taxes on Health Savings Accounts (HSAs) and other similar savings vehicles would raise $19.6 billion, while provisions relating to retiree drug subsidies would raise taxes by $5.4 billion.  Raising the threshold to itemize health expenses from 7.5 percent to 10 percent of adjusted gross income would generate $15.2 billion in revenue, limiting the deductibility of insurance industry executive salaries would raise $600 million, and a 10 percent tax on indoor tanning services would raise $2.7 billion.

The excise tax on medical devices would raise taxes by $19.2 billion.  Similar excise taxes on insurance companies and drug manufacturers would raise $59.6 billion and $22.2 billion respectively.  Finally, the tax on health benefits used to finance the Comparative Effectiveness Research Trust Fund would raise $2.6 billion over ten years.

Out-Year Spending:  The score indicates that of the $871 billion in spending for coverage expansions under the specifications examined by CBO, only $17 billion-or less than two percent-of such spending would occur during the first four years following implementation (i.e. 2010-2013).  Moreover, the bill in its final year would spend a total of nearly $200 billion to finance coverage expansions.  In other words, the Democrat bill spends so much, it needs many of its tax increases to take effect immediately to finance spending beginning in 2014-and even then cannot come into proper balance without relying on budgetary gimmicks.

Budgetary Gimmicks:  While the CBO score claims H.R. 3590 as amended would reduce the deficit by $132 billion in its first ten years, Democrats achieved that "deficit-neutral" solely by excluding the cost of reforming the Sustainable Growth Rate (SGR) mechanism for Medicare physician payments-the total cost of which stands at $285 billion over ten years, according to CBO-from this bill, and including it instead in separate legislation (H.R. 3961; S. 1776) that is not paid for.  While Members may support reform of the SGR mechanism paid for in a fiscally responsible manner, many may view any legislation that presumes a more than 21 percent cut in Medicare payments to physicians in 2010 as an inherent gimmick designed solely to hide the apparent cost of health "reform."

The bill also relies on $72 billion in revenue from a new program for long-term care services.  As the long-term care program requires individuals to contribute five years' worth of premiums before becoming eligible for benefits, the program would find its revenue over the first ten years diverted to finance other spending in Democrats' health care "reform."  However, even Democrats, such as Senate Budget Committee Chairman Kent Conrad (D-ND), have called the program a "Ponzi scheme," and non-partisan actuaries at the Centers for Medicare and Medicaid Services found that the program faces "a significant risk of failure."  Therefore, many may find any legislation that relies upon such a program to maintain "deficit-neutrality" fiscally irresponsible and not credible.