What Will Health Care Reform Cost You?

This story was written by Michelle Andrews.
Health care reform, if it passes, will cost about $1 trillion over the next 10 years. Negotiators in the Senate and House are now saying they've winnowed the cost down to "only" $900 billion or so. Where will that money come from? Look in the mirror.

Although President Obama and congressional leaders have been adamant that health care reform will be financed through savings on existing programs or new revenue, the Congressional Budget Office estimates that the House proposal would actually increase the deficit by $239 billion over 10 years. While it's too soon to say what the final plan or its financing will look like - several versions of the bill in both the House and the Senate would have to be reconciled before final votes are held - here are the key financing options that are on the table.

Squeeze savings out of Medicare and Medicaid

   
  • Support: Fairly broad-based
       
  • Opposition: Some insurers and health care providers that stand to lose money
       
  • Likelihood of inclusion in final bill: High
       
  • Value over 10 years: $465 billion
       
  • Potential cost to you: If you're a Medicare Advantage patient, the quality of care might suffer.

    This proposal would provide about half the money necessary for the health care overhaul, in part by reducing payments to hospitals that treat Medicare patients. Payments to private Medicare Advantage plans would be trimmed by $156 billion over 10 years to bring them in line with payment rates for patients in traditional Medicare. Supporters of a private-market approach to Medicare, who have seen the writing on the wall for some time on this issue, caution that some seniors may suffer if private plans, which may offer enhanced services and better-coordinated care than traditional Medicare, pull back in their markets.

    Tax the wealthy

       
  • Support: House Democrats
       
  • Opposition: Republicans, some newly elected House Democrats from wealthier districts, Senate Finance Committee members who believe any new tax revenue should come directly from the health care sector
       
  • Likelihood of inclusion in final bill: Uncertain
       
  • Value over 10 years: $544 billion
       
  • Potential cost to you: If you're an individual making over $280,000 or a family with income over $350,000, you could eventually be looking at a tax surcharge of from 1.0 to 5.4 percent on your income above that amount.

    The current House bill would impose an income tax surcharge starting at 1.0 percent on the top 1.2 percent of earners in the country, or individuals with adjusted gross incomes over $280,000 and families that earn more than $350,000 (some legislators are calling for a higher threshold, however). The Joint Committee on Taxation estimates that the surcharge would have no impact on 96 percent of small businesses, but "imposing taxes on anybody in a recession is not going to promote economic growth," says Joseph Antos, a health policy expert at the right-leaning American Enterprise Institute. Negotiators on the Senate Finance Committee reportedly prefer to raise revenues to pay for health reform from within the health care system itself, by taxing the value of health insurance benefits, for example, or penalizing employers who don't offer health insurance.

    Tax employee health insurance benefits

       
  • Support: Senate members have discussed implementing a capped version of this tax; President Obama has not ruled it out.
       
  • Opposition: Labor unions
       
  • Likelihood of inclusion in final bill: Moderate
       
  • Value over 10 years: Full taxation would yield $2.5 trillion; capping the exclusion at the level of the standard federal employee plan would generate $418.5 billion.
       
  • Potential cost to you: You'd have to pay taxes on the value of your employee health plan or, more likely, on the amount of its value that exceeds an average employee's - now about $13,000.

    A typical health insurance plan for a family costs about $13,000 a year, but you pay no income tax on the contributions that your employer makes toward those benefits. That freebie costs the federal government approximately $245 billion in forgone income tax revenues every year. Economists and health policy experts favor eliminating the tax exclusion, as it's called, on the grounds that it encourages overly generous coverage that, in turn, encourages employees to use more health care than they need. Rather than eliminating the tax break entirely, another option would be to cap it at a certain level - for example, the amount of the standard federal employee's health plan, which is now worth about $13,100. Unions, which often have richer-than-average benefits, are strongly opposed to any tax change. Recently, a third option emerged: Tax the insurers or employers that offer "overly" generous plans. Although more politically palatable, experts warn that those charges would get passed along to consumers, likely in the form of higher premiums.

    Limit the itemized deductions of the wealthy

       
  • Support: President Obama
       
  • Opposition: Nonprofits, homeowners groups, real estate professionals
       
  • Likelihood of inclusion in final bill: Slim
       
  • Value over 10 years: $267 billion
       
  • Potential cost to you: If you're in the top income tax brackets, your ability to fully itemize deductions would be reduced.

    This proposal would require taxpayers in the top 33 percent and 35 percent income tax brackets to deduct certain items, like their contributions to charitable organizations and mortgage interest, at the lower 28 percent rate. President Obama recently spoke in favor of this revenue raiser, but it was loudly booed by nonprofits that depend on charitable contributions, as well as homeowners and real estate professionals who benefit from the mortgage tax break. Like the surcharge on the wealthy, this proposal has also gotten less traction among Senate Finance Committee members, because it isn't directly linked to the health sector.

    Impose or raise "sin" taxes

       
  • Support: Senate Finance Committee members
       
  • Opposition: Soft drink and alcoholic beverage manufacturers, grocery and restaurant trade groups
       
  • Likelihood of inclusion in final bill: Uncertain
       
  • Value over 10 years: $113 billion
       
  • Potential cost to you: A tax of 3 cents per 12-ounce can of sugar-sweetened beverage and an excise tax of about 14 cents per bottle of beer or glass of wine

    Although not strictly related to health care financing, there's a certain logic to raising money for health reform through taxes on sugary soft drinks and alcohol. On the other hand, sin taxes tend to fall disproportionately on poor people, who have less ability to pay taxes in the first place. Interest in this option got a boost following a recent report that obesity-related costs account for over 9 percent of all annual medical spending, or $147 billion. People changing their habits as a result of new taxes could lower these expenses, but those savings are hard to quantify and may be offset by Social Security and Medicare costs attributed to people living longer, as the CBO has noted.

    Penalize employers who don't offer health insurance

       
  • Support: Broad-based
       
  • Opposition: Some small-business groups
       
  • Likelihood of inclusion in final bill: High
       
  • Value over 10 years: Up to $163 billion
       
  • Potential cost to you: If you're a small-business owner, you might have to pay a stiff penalty if you don't insure your workers.

    Both bills have "pay or play" provisions that penalize employers who don't offer health insurance to their workers. But penalties in the House version are more stringent - up to 8 percent of payroll - compared with the Senate version, which would impose a flat $750 penalty per full-time worker. Some small businesses would be exempt from this provision, including employers with 25 or fewer employees under the Senate bill and employers with annual payrolls of less than either $250,000 or $500,000 under the House bill. (The House committees approved different thresholds and will have to work out the differences.)

    Lower the insurance subsidy threshold

       
  • Support: Fiscal conservatives
       
  • Opposition: Consumer advocacy groups
       
  • Likelihood of inclusion in final bill: Uncertain
       
  • Value over 10 years: Unspecified for now
       
  • Potential cost to you: If you make between $32,490 and $43,320 a year, you might lose out on subsidies to help you pay for your health insurance.

    Current House and Senate bills allow individuals and families with incomes up to four times the federal poverty level ($43,320 for a single person or $88,200 for a family of four) to qualify for help buying coverage through the national insurance exchange. But as negotiators look for ways to trim health reform's trillion-dollar price tag, the more than $700 billion that's earmarked for subsidies could come under scrutiny. "Reducing the outlay from 400 [percent] to 300 percent of poverty is probably something they'll have to do," says Paul Ginsburg, president of the Center for Studying Health System Change, a nonpartisan research and policy organization. It's a tough call between raising health insurance costs for someone who earns just a bit more than someone else and saving tens or even hundreds of millions of dollars in total program costs. Then again, most of these choices are.


    More from MoneyWatch.com:
    Health Care Reform: Stop Focusing on the Cost
    Health Care Reform Cheat Sheet
    These Health Care Stocks May Show Signs of Life Under ObamaCare
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