Key Budget Changes in the Senate Health Bill

Majority Leader Harry Reid released his revised health care bill today; the Congressional Budget Office followed shortly thereafter with its cost estimate.

Leader Reid has made many changes to his original bill. The one you will hear the most about, just because it is amusing, is that the tax on cosmetic surgery (the “bo-tax”) has been replaced with a tax on indoor tanning services. (I’m not sure of the politics here, but I presume this tax will be justified by pointing out that indoor tanning is the equivalent of cigarette smoking for your skin.)

From a budget perspective, CBO identifies the following as among the most important changes:

• The tax credit for small businesses would be made available to firms paying somewhat higher average wages, and it would first take effect in 2010 rather than 2011.

• The penalty for not having insurance would be the greater of a flat dollar amount per person or a percentage of the individual’s income, which would increase the amount of penalties collected.

• The provision establishing a public plan that would be run by HHS was replaced with a provision for multi-state plans that would be offered under contract with OPM.

• Certain workers would have the option of obtaining tax-free vouchers from their employers equal in value to the contributions their employers would make to their health insurance plans. The value of vouchers would be adjusted for age, and the vouchers would be used in the exchanges to purchase coverage that would otherwise be unsubsidized. (CBO and JCT estimate that about 100,000 workers would take advantage of that option.)

• Several provisions regulating insurers were added, including a requirement for an insurer to provide rebates if its share of premiums going to administrative costs exceeds specified levels and a general prohibition on imposing annual limits on the amount of benefits that would be covered.

• Additional federal funding for CHIP would be provided to states in 2014 and 2015.

• A provision that would increase Medicare’s payment rates for physicians’ services by 0.5 percent for 2010 was eliminated. Instead, the 21 percent reduction in those payment rates that is scheduled to occur in 2010 under current law would take effect. [In other words, the previous bill had a one-year doctor fix; the new bill has none.]

• The measure of Medicare spending that would be used to set savings targets for the Independent Payment Advisory Board was modified. [As I will discuss in a later post, this is a big deal.]

• The increment to the Hospital Insurance portion of the payroll tax rate for individuals with income above $200,000 and for families with income above $250,000 was raised from 0.5 percent to 0.9 percent.

• The 5 percent excise tax on cosmetic surgery was eliminated, and a 10 percent excise tax on indoor tanning services was added.

• Community health centers and the National Health Service Corps would receive an additional $10 billion in mandatory funding.

• Revisions to and extensions of the Indian Health Care Improvement Act were added.