Health Care Reform: How It Will Affect You

This story was written by MoneyWatch.com's Michelle Andrews.
The political back-and-forth over health care reform has sometimes resembled a tennis match, with each day bringing new volleys and salvos from different interest groups and politicians. Keeping score is tough, in part because there are so many seemingly technical questions.

Should we end the tax exclusion for health insurance? If so, who should pay the tax: you, your employer, or the insurer? Should we sock the rich with an income tax surcharge to help pay for all this? How much help should the middle class get to pay for the plan?

These issues aren't just for wonks. How they shake out determine the shape of legislation that may have the greater influence over your financial future than any law this decade. As the congressional summer recess temporarily quiets the debate, here's your chance to get caught up on the issues.

1. Company contributions to employee plans

Does it affect you? It does if you get insurance through your job.

Politicians keep saying that if you like your current insurance you can keep it, but critics have raised serious doubts about whether they can make good on that promise. Even if you keep your current company-sponsored policy, health reform could put you on the hook for a bigger chunk of the premium. The House bill requires employers to contribute at least 72.5 percent of the premiums for singles and 65 percent for families, while the Senate bill requires a 60 percent employer contribution for both. Employers currently contribute a bit more than that: an average of 84 percent of an individual employee's premium and 73 percent of the premium for family coverage, according to the Kaiser Family Foundation. Your employer might continue to be that generous; odds are, though, that its contribution would drop to the mandated level. Guess who'd make up the rest?

2. Health care tax exclusion

Does it affect you? Maybe, especially if your company's health plan is more generous than average.

At the moment you aren't taxed on the value of the health benefits you get, and your company gets a tax break for offering them. Some health reformers have long argued that this tax exemption should be eliminated because it encourages overly generous policies and overly liberal use of them.

A likely compromise would be to end the exemption only for the most generous benefits. You might have to pay tax on the full value of your policy if you have a real "Cadillac" contract; or you might be taxed only to the extent that your policy exceeds a certain threshold ― perhaps that of the average employer-sponsored policy, about $13,000 right now.

Even if negotiators decide to tax insurers and employers that provide these generous benefits rather than employees. But it hardly matters: Any tax would likely be passed on to you in the form of higher premiums, deductibles, and copayments, says Len Nichols, director of the health policy program at the New America Foundation, a nonpartisan public policy think tank.

3. Extra taxes on the rich

Does it affect you? Maybe, if Washington decides you're rich.

The House bill includes a graduated tax surcharge of up to 5.4 percent on what it defines as wealthy households (singles with income more than $280,000 and couples with income more than $350,000). When some legislators complained that figure was too low, a $1 million threshold was proposed. Many experts believe it'll be next to impossible to foot health care reform's projected $1 trillion cost without some sort of tax increase, and "the surcharge has the virtue of allowing Obama to keep his campaign promise not to tax the middle class," says Nichols.

4. Insurance subsidies for consumers

Does it affect you? It could, if your income is less than four times the poverty level.

Both House and Senate bills would subsidize the cost of health insurance for families that aren't covered through work and who meet certain income guidelines. People with incomes up to four times the federal poverty level ― or $43,430 for an individual and $88,200 for a family of four ― would qualify for a sliding-scale subsidy to buy a policy on the national exchange. "Quite a few folks that would clearly be defined as middle class could get some help with premiums," says Kathleen Stoll, director of health policy for Families USA, a health care advocacy group.

Jonathan Gruber, an MIT economist who helped draft Massachusetts' universal health plan, says that the subsidy should extend to families at up to four times the poverty level. Setting the limit at three times poverty, as was done in Massachusetts, left too many people unable to afford coverage, he says. But as legislators try to trim the overall bills' price tag, the subsidy makes a tempting target. As a result, there's been talk of reducing the subsidy to three times the poverty level, or up to $32,490 for individuals and $66,150 for families of four.

5. The Medicare drug "donut hole"

Does it affect you? It does if you or a loved one participates in Medicare's drug coverage.

The House bill would gradually eliminate the provision in the Medicare Part D prescription drug law that leaves a gaping hole in coverage for seniors who spend more than $2,700 a year on drugs (coverage doesn't kick back in until they've spent $4,350). The donut hole helps keep a lid on the program's overall costs, but for the roughly 25 percent of seniors who end up there, the financial consequences can be steep. Under the House bill, drug companies would also have to provide a 50 percent discount on brand-name prescriptions filled within the coverage gap.

What will end up in the final bill is hard to predict, though. "Clearly, seniors will get some help with the donut hole," says Richard Kirsch, national campaign manager for Health Care for America Now, a consumer group. "But how much and how it will be done is an open question."

6. Health insurance underwriting

Does it affect you? Yes, if you're buying an individual policy.

Normally insurers price individual insurance policies based on the risk you pose. Both proposed bills prohibit charging people higher premiums based on pre-existing medical conditions or gender, but they do allow insurers to take age into account, up to a point. Called "age rating," the current proposals specify that premiums for older people can't be any more than twice as expensive as those for younger people.

But keep an eye on the Senate Finance Committee, which is charged with figuring out how to pay for reform, but hasn't yet put forward its proposals. An earlier committee paper proposed allowing insurers to charge older people five times more than younger ones.

7. The burden on small business owners

Does it affect you? It does if you work for or own a small business.

Both bills provide tax credits to help some small employers buy health insurance for workers. If they don't, neither bill requires them to pay the same penalty as larger businesses. Small businesses that could buy coverage through a national exchange would presumably be able to get a better deal than they could buying directly from an insurer, since they'd have the advantage of being part of a much larger insurance pool.

The main question now is: How small is small? The House bill would provide a tax credit for employers with fewer than 25 employees, for example, while in the Senate, "small" for the purposes of the tax credit means fewer than 50 employees.



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