If you think you> will avoid paying for health-care reform because you re not in the highest tax bracket, think again.
President Obama is pressing for coverage for the 45 million Americans who currently lack health insurance. Congressional committees are now attempting to figure out how to foot the bill -- estimated at more than $1 trillion over 10 years.
Any legislation that makes it to Obama s desk will impact more people than just the uninsured. Someone will have to shoulder the load of paying for their care. A proposal from House Democratic leaders released Tuesday suggests a new tax on the rich, but there are other mechanisms to fund the bill still on the table that could affect a wide array of Americans.
Another bill from the Senate Finance Committee is expected this week, rendering the legislation a moving target with lots of unknowns, says Karen Davenport, the director of health policy at the Center for American Progress, a left-leaning think tank. That may not delay the legislation Obama has stressed that he wants Congress to pass a viable health-care bill before its month-long recess begins on Aug. 8 but it leaves plenty of questions about which groups will pay for one of the largest expansions of federal spending in recent history.
As legislators wrangle over the details, a few potential financing avenues have emerged. They re looking at a combination of new taxes and savings from Medicare, and savings within the health-care system that will lower overall costs as a way to pay for it, says Davenport. The specific ways individuals and companies will have a responsibility is not clear yet.
Whether you want it or not, a revamped health-care system is coming. Here s a breakdown of who could end up paying what.
One measure introduced by House Democrats led by House Energy and Commerce Chairman Henry Waxman (D., Calif.) this week calls for a graduated surtax on wealthy households. Starting in 2011, couples earning between $350,000 and $500,000 a year would be subject to a 1% surtax. For those making between $500,000 and a $1 million, the surtax would be 1.5%, and for those making more than $1 million the surtax would be 5.4%. Those rates could eventually increase if the government doesn't achieve the health-cost savings it anticipates.
A little more than 1% of U.S. households, or two million taxpayers, would be affected, according to the Tax Policy Center, a nonpartisan research group. The tax is expected to raise about $540 billion a little more than half the projected cost of health-care reform over 10 years.
[Legislators] looked at lots of different ways of raising money for this, and they concluded that the political heat this would generate is more manageable than the heat from a health benefits tax, Davenport says.
Seniors enrolled in Medicare
Obama has said he wants the majority of funding for reform to come from cutbacks. And it looks like a reduction in federal subsidies for Medicare will be included in any legislation that makes it to the president, says Brad Herring, a health economist at Johns Hopkins University s Bloomberg School of Public Health. These cuts would effectively pay for health care for the poor with health care for the elderly.
The Medicare Advantage program, in which beneficiaries enroll through private health plans, is a likely target. As of March, roughly 10.2 million Medicare beneficiaries were enrolled in these private plans, nearly double the number from 2003, according to the Kaiser Family Foundation.
Many seniors are drawn to Advantage plans because they generally offer more benefits and lower cost sharing, but proposed cuts to the program could leave seniors with reduced Medicare benefits, Herring says. As a result, many seniors might disenroll.
Obama s primary goal is to expand health-care coverage to as many people as possible. And that means not only providing incentives to get coverage but also making it less palatable to go without. Those who don t have insurance will have to pay for it.
Individuals who don t buy coverage would pay a penalty of as much as 2.5% of their adjusted gross income, up to the cost of an average health insurance plan, according to the latest legislation from the House. And employers with payrolls exceeding $400,000 annually that don t offer coverage would have to pay 8% of each uninsured worker s salary, with exemptions for smaller firms.
Who will get slapped with a fine? Younger, unmarried consumers, who are more likely to go without health insurance, says Jim Burgess, a health economist in the department of health policy and management at Boston University s School of Public Health.
However, the White House would advocate for exemptions for low-income workers who can t afford insurance though the affordability criteria may be somewhat arbitrary, Herring says.
Tax on employer-sponsored benefits
A tax on employer-sponsored health benefits is another financing option. Sen. Max Baucus (D., Mont.), chairman of the Senate Finance Committee, has supported the idea, but it is losing favor.
Today, Americans get their coverage tax free, which is one reason they spend so much on health care. By implementing a tax on those benefits, the government could raise money to pay for more health insurance while simultaneously reducing demand, Burgess says.
Health economists generally agree this plan would have good effects in terms of improving the system s efficiency and equity, Herring says. But the idea has faced resistance in part because Obama campaigned on the promise of not raising taxes on people with incomes under $250,000. A tax on health benefits would impact virtually all workers who get coverage through their employer and would be inconsistent with that pledge, he says.