While discussion in the Senate during the past few days has focused on how health insurance premiums will be impacted under the Patient Protection and Affordable Care Act, another area expected to gets its fair share of attention on the Senate floor is how the $848 billion reform bill—through savings and taxes—will be paid for over the next decade.
Here is how the bill would pay for health reform:
Medicare and Medicaid Savings
The Congressional Budget Office (CBO), in its Nov. 18 analysis of the Senate reform bill, estimated that making numerous changes to payment rates related to Medicare, Medicaid, and associated programs, could reduce direct spending by $491 billion over the 2010-2019 period. This would happen by:
- Making permanent reductions in annual updates to Medicare’s payment rates for most services in the fee for service sector (other than physicians’ services). This would yield budgetary savings of about $192 billion over 10 years.
- Setting payment rates in the Medicare Advantage program on the basis of the average of the bids submitted by Medicare Advantage plans in each market. This could yield savings of about $118 billion over the 10-year period.
To address the concern and criticism of cutting Medicare Advantage, the Senate Finance Committee issued a brief on the topic on Tuesday—saying that the Senate bill cuts down on overpayments—not benefits. It said that the Medicare Payment Advisory Commission (MedPAC) had determined that Medicare was paying approximately $12 billion more annually for beneficiaries enrolled in private Medicare Advantage plans than if they were in traditional Medicare.
Taxes
A number of taxes have been added to the proposed Senate bill. The one receiving the greatest attention has been the so-called "Cadillac" tax that would impose an excise tax on insurers of employer sponsored health plans with aggregate values that exceed $8,500 for individual coverage and $23,000 for family coverage, effective January 2013.
Speaking on the Senate floor about the tax on Tuesday night, Sen. Max Baucus (D-MT), chairman of the Senate Finance Committee, said the tax is expected to also cut excessive healthcare spending in the long run.
Other taxes under consideration in the Senate bill are:
- Imposing a tax on individuals without qualifying coverage of $750 per year—up to a maximum of three times that amount—to be phased in beginning in 2014.
- Increasing the tax on distributions from health savings accounts or an Archer medical savings accounts that are not used for qualified medical expenses to 20% (from 10% for HSAs and from 15% for Archer MSAs) of the disbursed, effective January 1, 2011.
- Increasing the threshold for the itemized deductions for unreimbursed medical expenses from 7.5% of adjusted gross income to 10% of adjusted gross income for regular tax purposes, effective January 1, 2013).
- Increasing the Medicare Part A (hospital insurance) tax rate on wages by 0.5% (from 1.45% to 1.95%) on earnings over $200,000 for individual taxpayers and $250,000 for married couples filing jointly, effective January 1, 2013.
- Setting a new $2.3 billion annual fee on the pharmaceutical manufacturing sector, effective for sales after December 31, 2008.
- Setting a $2 billion annual fee on the medical device manufacturing sector, effective for sales after December 31, 2008.
- Setting a $6.7 billion annual fee on the health insurance sector for net premiums written after December 31, 2008 and third party agreement fees received after December 31, 2008.
- Limiting the deductibility of executive and employee compensation to $500,000 per applicable individual for health insurance providers, effective January 1, 2009.
- Setting a tax of 5% on the amount paid for cosmetic surgical and medical procedures, effective January 1, 2010.