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Baucus Details New Taxes, Fees For Overhaul Baucus Details New Taxes, Fees For Overhaul

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Baucus Details New Taxes, Fees For Overhaul

Senate Finance Chairman Max Baucus has proposed two separate taxes on health insurance companies, as well as taxes on drugmakers, medical-device manufacturers and clinical laboratories, to help pay for the $900 billion healthcare overhaul proposal that he released to select lawmakers over the weekend.

Insurers face an excise tax on their most expensive plans in an effort to reduce wasteful medical spending, as well as an across-the-board tax based on market share, according to a copy of the framework Baucus shared. Baucus proposed a 35 percent excise tax on any insurance plan valued above $8,000 for individuals and $21,000 for families.


The tax would apply to the value of the plan above the threshold. The 17 highest-cost states would be held to a higher threshold, rising 20 percent, 10 percent and 5 percent annually for three years. Plans sold on the individual market would be exempt.

Health insurers also face a $6 billion annual fee that would be based on market share.

Pharmaceutical companies would be taxed a total of $2.3 billion annually based on market share. A fee on medical-device manufacturers would total $4 billion a year. Clinical labs would be taxed $750 million each year.


Flexible and health savings accounts would see some new restrictions, including a limit on flexible savings account contributions to $2,000 a year. Health savings account withdrawals before the age of 65 that are not used for qualified medical expenses would be taxed at 20 percent rather than 10 percent. The proposal also calls for a uniform definition across such accounts as to what qualifies as a medical expense.

The proposal also seeks to help small businesses, families and individuals afford health insurance. Businesses with fewer than 25 employees and average wages of less than $40,000 a year would receive as much as a 35 percent credit in 2011 and 2012.

Families and individuals earning up to 300 percent of the federal poverty level would be eligible for tax credits on a sliding scale. The credits would be based on the percentage of income the health insurance premium represents, starting at 3 percent of income and rising to 13 percent of income for those earning closer to the 300 percent of poverty line.

The credits would be tied to the silver plan, or second-cheapest of four coverage levels.


Health insurance plans in the exchange would fall into platinum, gold, silver or bronze categories. Platinum plans must provide coverage for 90 percent of expenses, gold 81 percent, silver 73 percent and bronze 65 percent. Young adults would be permitted to purchase a "young invincible" plan that provides less-expensive catastrophic coverage as well as preventive services.

While individuals would be required to purchase health insurance beginning in 2013, employers are bound by a "free-rider" approach that does not mandate they provide coverage. But employers with more than 50 full-time employees would have to pay a fee for each employee who receives a tax credit to buy insurance. The employer payment is based on the amount of the credits its employees are eligible for, but it is capped at $400 multiplied by the number of employees in the firm.

Employer-provided insurance that costs 13 percent or more of an employee's income is deemed unaffordable. Employees with unaffordable employer-provided insurance are eligible for a tax credit, while those with affordable employer-provided insurance are not.

The proposal also expands Medicaid to those earning 133 percent of the federal poverty level. Without being specific, the proposal would help states afford the cost of expanding the shared federal-state low-income health program.

The proposal also creates a co-op system of healthcare coverage to compete with private insurers. The co-ops do not appear to be governed by a national board, which Republicans had objected to, although HHS and a federal advisory board would determine which co-op proposals would receive federal grants and loans for start-up funding.

Beginning in 2013, children enrolled in the Children's Health Insurance Program would be covered instead through an exchange and receive supplemental insurance through CHIP.

The proposal also seeks to rein in healthcare spending by basing physician and hospital payments at least in part on quality of care rather than quantity of services provided. In an effort to close the pay disparity between general practitioners and specialists, the proposal would give general practitioners a 10 percent Medicare bonus for five years. The bonuses would be partially offset by a 0.5 percent reduction in specialist payments.

The six senators, including Baucus, who are negotiating a bipartisan compromise are meeting today to offer the chairman feedback on the proposal.

This article appears in the September 12, 2009 edition of National Journal Daily PM Update.

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