Health Care Reform's Final Sticking Point: How to Pay for It

Having shepherded the mammoth U.S. health care insurance reform bill through the most contentious and partisan legislative battleground in recent memory, House and Senate Democrats aren't about to let it get waylaid by procedure now. So, they'll likely bypass the traditional House-Senate conference for reconciling legislation and instead hold informal talks through most of January to work out the differences between the two bodies' bills. A more formal conference would include both Democratic and Republican representatives, but because the bills have primarily been passed along strictly party lines, it's safe to assume the final negotiations will be done that way, too.%%DynaPub-Enhancement class="enhancement contentType-HTML Content fragmentId-1 payloadId-61603 alignment-right size-small"%%Indeed, House and Senate leaders have publicly discussed holding secret meetings rather than a formal conference to come up with a final compromise between the House and Senate bills. Already, the House has quickly agreed to drop the idea of a new government-run insurance program, realizing it could never get the so-called public option through the Senate. That means the major final sticking point will be hashing out how to pay for the legislation.

Surcharges, Cost Cuts and New Taxes

The House uses a combination of a tax surcharge on wealthy Americans and new Medicare spending reductions. Individuals with annual incomes over $500,000 -- as well as families earning more than $1 million -- would face a 5.4% income tax surcharge.

The Senate bill aims to cut Medicare expenses by $480 billion through cost-control measures that will reduce payments to providers of Medicare. The bill also imposes a 40% tax on so-called Cadillac health plans, those valued at more than $8,500 for individuals and $23,000 for families. The Senate bill would also hike Medicare payroll taxes on families making over $250,000; the House bill doesn't.

If you don't have insurance now, both versions would require you to purchase coverage. The House bill imposes a fine of up to 2.5% of your income if you don't. The Senate plan levies a fine of up to $750, or 2% of your income, whichever is greater. Both versions include a hardship exemption for poorer Americans.

The other key goal is reaching a compromise on abortion. The final version will definitely prohibit the use of federal funds for abortion. Sen. Ben Nelson (D-Neb.) has made it clear he will vote no on the final legislation unless he's satisfied with the abortion compromise. Without his vote, the bill would die in the Senate.

Little Room to Manuever

The key negotiating will be done between the House and Senate leaders and the chairman of the committees that were involved in drafting the legislation. Given that Democratic party leaders know they have very little wiggle room, they'll likely pick a few items from the House bill that they expect will be acceptable to the Senate and get the compromise bill back to the floor as quickly as possible, probably in a matter of weeks. The leaders know the 60 votes needed in the Senate is fragile.

Assuming a compromise is reached and the final bill passes, it will mean tens of millions of uninsured Americans will be able to get health insurance in the future. Provisions include:
  • Subsidies for a family of four to buy insurance. This will most likely be available to families making up to about $88,000 annually, or 400% of the federal poverty level.
  • A limit on out-of-pocket expenses.
  • Insurance companies will no longer be able to deny coverage for pre-existing conditions.
  • Insurers will be barred from charging higher premiums based on a person's gender or medical history.
The law would also create a national insurance exchange, a new government-regulated marketplace where individuals and small businesses could come together to buy coverage. This exchange aims to reduce the cost of health insurance for millions of Americans who aren't covered through the workplace, but it won't start until at least 2013. Large businesses would be required to provide coverage or contribute to its cost.
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