House Democrats Roll Out Plan To Overhaul Health Care System

On Tuesday, House Democrats unveiled a health reform bill (HR 3200) that would create a surtax on high-income U.S. residents to partially offset the cost of expanding insurance coverage to 37 million more U.S. residents over the next 10 years, the Washington Post reports (Montgomery/Connolly, Washington Post, 7/15).

The bill -- written by the House Education and Labor, Energy and Commerce, and Ways and Means committees -- would establish a government-sponsored public plan option designed to compete with private insurers in an insurance exchange (Smith, Reuters, 7/14).

The bill also would require employers and individuals to buy health insurance coverage or pay into a health fund (AP/Google.com, 7/14).

The remaining cost of the bill -- about $500 billion -- would come from cost savings derived from Medicare and Medicaid (Cohn/Edney, CongressDaily, 7/15).

Income Tax Increases

Rep. Ron Kind (D-Wis.), a member of the House Ways and Means Committee, said the surtaxes would begin in 2011 and increase in 2013 if more money was needed to fund reform programs. Kind said the tax rates would be:

• 1% for U.S. residents whose incomes start at $350,000 annually;
• 2% for people whose incomes start at $500,000 annually; and
• 3% on incomes of $1 million or more.

The rates would increase to 2%, 3% and 4%, respectively, if necessary in 2013 (Reuters, 7/14).

Employer Provisions

Under the legislation, employers who do not provide coverage to their workers would be required to pay the government a penalty of up to 8% of their payroll (Washington Post, 7/15).

Employers with payrolls at or under $250,000 annually would be exempt from health care contribution requirements.

The bill also would establish a graduated rate of contribution requirements for employers that do not offer a basic benefits package and have payrolls of between $250,000 and $400,000 annually.

Employers offering insurance plans would automatically enroll employees into the plan with the lowest premium; employees would have the ability to opt out.

Under the legislation, employees would be entitled to an "affordability test exception," under which an employee could apply for subsidies through an insurance exchange if employer-sponsored insurance would cost more than 11% of an employee's income.

However, typical subsidies would go only to U.S. residents with annual incomes that do not exceed 400% of the federal poverty level.

Individual Coverage

The bill also stipulates that individuals could buy health insurance through the insurance exchange if they are not enrolled in other acceptable coverage (Norman, CQ HealthBeat, 7/14).

In addition, the bill would expand Medicaid to all U.S. residents whose incomes are up to 133% of the federal poverty level (Levey, Los Angeles Times, 7/15).

Under the bill, U.S. residents who do not purchase health coverage by 2013 would be required to pay a penalty of 2.5% of their income.

The bill also would prohibit insurers from employing "discriminatory practices," such as refusing coverage for people with pre-existing conditions or excluding certain treatments from coverage (Washington Post, 7/15).

Provider Issues

The legislation also states that Medicare providers would have the option of participating in the new government-sponsored plan, which would receive $2 billion in startup administrative money in addition to three months of reserves for claims payments. Providers would be automatically enrolled in the public option unless they opt out (Norman, CQ HealthBeat, 7/14).

The legislation would create a blue-ribbon commission at the U.S. Institute of Medicine that would have one year to recommend changes to Medicare reimbursement rates.

The commission would decide how to adjust rates paid to physicians and hospitals in order to provide incentives for higher quality of care at lower cost. The new rates would go into effect for two years using $8 billion set aside to pay for the changes. Congress would then review the rates and determine their efficacy (Smith, Reuters, 7/14).

According to CQ HealthBeat, the legislation appears to address recent complaints from the Democratic Blue Dog Coalition that rural areas are shortchanged by Medicare reimbursements (Norman, CQ HealthBeat, 7/14).

CBO Weighs In

On Tuesday, the Congressional Budget Office estimated that the House bill would cost just over $1 trillion (Cohn/Edney, CongressDaily, 7/15). CBO said most major provisions would take effect in 2013.

However, CBO Director Douglas Elmendorf said the agency will not have a final cost estimate until it receives more information regarding the tax package and changes to Medicare and Medicaid (Washington Post, 7/15).

Reaction

In a statement, President Obama said, "This proposal controls the skyrocketing cost of health care by rooting out waste and fraud and promoting quality and accountability." Obama added, "I look forward to continuing to work with all House members in ensuring this legislation helps all Americans and plays an essential role in reducing deficits and bringing fiscal sustainability to our nation" (Holland/Mason, Reuters, 7/14).

House Speaker Nancy Pelosi (D-Calif.) said that the House introduced "historic and transformative legislation that will benefit all Americans, a health insurance act for the great middle class" (Pear/Herszenhorn, New York Times, 7/15).

House Energy and Commerce Committee Chair Henry Waxman (D-Calif.) said, "This legislation is landmark legislation, and a defining moment for our country," adding, "We are going to accomplish what many people have felt wouldn't come in our lifetime" (Washington Post, 7/15).

Eric Schoenberg, a private investor and professor at Columbia University, commended the surtax and said the wealthiest U.S. residents should pay for reform efforts because they disproportionately benefited from tax cuts under the Bush administration. He said, "It's only fair for those of us who have benefited the most from this system to contribute the most" (Stephenson, CQ HealthBeat, 7/14).

However, some lawmakers have criticized the legislation, particularly the surtaxes. Sen. Ben Nelson (D-Neb.) said, "Tax is a four-letter word," even for families whose incomes are too low to qualify for the surtaxes, because they all "hope they're going to be there someday."

Some Republicans said the tax would eliminate jobs because it would fall disproportionately on small businesses, whose owners often report earnings on their personal tax returns, which could push their incomes high enough to qualify for the surtaxes.

House Minority Leader John Boehner (R-Ohio) said, "You can't tax the job creators and expect them to create jobs" (Washington Post, 7/15).

Sen. Jeff Bingaman (D-N.M.) said of the legislation, "I don't think it's going to go anywhere in the Senate" (Los Angeles Times, 7/15).

Timeline

The House Ways and Means Committee plans to start debate and votes on Thursday, according to Reuters. Hoyer said he hopes to act on the bill before the August recess. He said, "We believe this can be done." Waxman said, "We, quite frankly, cannot go home for a recess unless the House and the Senate both pass bills to reform and restructure" health care (Reuters, 7/14).

Editorial

There is "no case to be made for the House Democratic majority's proposal to fund health care legislation through an ad hoc income tax surcharge for top-earning households," a Washington Post editorial states.

"A far better way to pay for health care would be to end the tax break for employer-provided health benefits, a subsidy that not only artificially pumps up demand for expensive treatments but also disproportionately benefits upper-income earners," the editorial states, adding, "Eliminating or, at least, capping it would be good health care policy as well as good tax and budget policy."

The editorial concludes, "Pretending that 'the rich' alone can fund government, let alone the kind of activist government that the president and Congress envision, is bad policy any way you look at it" (Washington Post, 7/15).

Broadcast Coverage

• ABC's "World News with Charles Gibson" on Tuesday reported on Obama's endorsement of the House health care reform legislation (Karl, "World News with Charles Gibson," ABC, 7/14).
• NPR's "All Things Considered" on Tuesday featured a discussion regarding the House health reform bill and possible financing sources (Rovner/Siegel, "All Things Considered," NPR, 7/15).
• PBS' "NewsHour with Jim Lehrer" on Tuesday reported on the health reform legislation released by the House. The segment included a discussion with NPR's health policy correspondent Julie Rovner (Ifill, "NewsHour with Jim Lehrer," PBS, 7/14).