TAX News Flash - RIA Tax Watch - Senate Democratic Leadership Unveils its Health Care Reform Package

Senate Democratic Leadership Unveils its Health Care Reform Package

Late in the evening of November 18, the Senate Democratic Leadership unveiled its healthcare reform package, the Patient Protection and Affordable Care Act. The cost of the bill is $849 billion over 10 years, is projected to cut the deficit by $127 billion over 10 years and by $650 billion in the second decade, and is said to cover 94% of eligible Americans.

Senate Democrats decided to use the shell of H.R.3590 the Service Members Home Ownership Tax Act of 2009 as the vehicle to move the bill through the Senate, instead of calling up the House passed bill.

Legislative text of the Senate bill is available at http://democrats.senate.gov/reform/patient-protection-affordable-care-act.pdf

NOTE: THIS IS OVER 2000 pages long.

The Senate bill's revenue offset provisions to pay for the cost of health reform include the following:

* An additional 0.5% hospital insurance (HI) tax would apply to wages in excess of $200,000 ($250,000 for joint filers).

* A 40% excise tax would apply to health coverage in excess of $8,500 (singles)/$23,000 (families), to be indexed for inflation, with increased thresholds for over age 55 retirees and those in certain high-risk professions. The tax would be levied at the insurer level. The employer would aggregate coverage levels and issue information returns for insurers showing the amount subject to the nondeductible. (Page 1,979 of bill – see link above); this appears to be paid by the insurer if a group health plan.)

* Employers would be required to report the value of health benefits on the employee's W-2.

* The definition of medical expenses for health savings accounts, Archer MSAs, health flexible spending arrangements, and health reimbursement arrangements would be conformed to the definition of the itemized deduction for medical expenses (thus eliminating the deduction for anything other than a prescribed drug or insulin).

* The penalty for nonqualified health savings account distributions would be increased from 10% to 20%.

* A $2,500 cap would apply to health flexible spending arrangements in cafeteria plans.

* Payments to corporations would be subject to the information reporting rules.

* An annual fee would be levied on manufacturers and importers of branded drugs, and on manufacturers and importers of certain medical devices.

* The deduction for expenses allocable to the Medicare Part D subsidy would be eliminated.

* The 7.5% AGI floor beneath the medical expense deduction would be raised to 10% (except for individuals age 65 and older (and their spouses)).

* A $500,000 deduction limit would apply to compensation paid to officers, employees, directors, and service providers of covered health insurance providers.

* The Code Sec. 833 treatment of certain health organizations would be modified.(Page 2,044 of bill).

* A 5% excise tax would apply to cosmetic surgery and similar procedures.

* The bill would create a new simple cafeteria plan nondiscrimination safe harbor for certain small employers.

* The bill also would create a credit for qualifying therapeutic discovery projects.