What Will Health Care Reform Cost You?

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

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

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

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

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

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

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.

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