By Robert Steere, Toolkit Staff Writer

The biggest news about health care reform out of Washington this week seems to be that there is no news. After weeks of intense negotiations and media hype geared toward passage of health care reform legislation by the end of July, it seems that our lawmakers now concede that nothing will be done in Congress until after the August break. Significant policy issues remain before an accord can be reached. In reality, that is a good thing, because all of us - including our lawmakers - will now have an opportunity to better understand what Congress is attempting to accomplish under the banner of health care reform.

We've all heard the old adage, "you can't see the forest for the trees." It cautions us about being so focused on the details of a matter that we can't see the big picture. But just as this caution is valid, so too is its mirror image. Sometimes "you can't see the trees for the forest." Today, in the midst of all the political rhetoric, health care reform has become the forest that blocks our view of the trees. It is so big, and so complex, it's easy to get lost in the big picture, so that the significant details end up ignored or given short shrift.

First, let's first look at the rhetoric of health care reform coming out of Washington. President Barack Obama and congressional leaders have repeatedly identified three guiding principles for health care reform: (1) to control the growth of health care costs; (2) to guarantee individual choice; and (3) to expand access to quality, affordable health care to all Americans. In reality, the emphasis is on the third principle, but a fourth principle has also been added - health care reform must be deficit neutral. As a result of this fourth principle, revenues must be raised (or costs cut) to cover the cost of any reforms, so tax increases will be a significant facet of any proposal considered by Congress.

Now let's look at some of the trees in the forest. This information is based on the provisions currently included in legislation approved by legislative committees of the House and Senate - House Bill 3200 in the House and the Affordable Health Choices Act in the Senate.

Mandatory Insurance

The legislative proposals currently under consideration by congressional committees impose a legal mandate for both individuals and employers, requiring individuals to obtain health insurance and requiring employers to offer health insurance to their employees. This is a dramatic change in public policy, imposing a proactive burden on all Americans to obtain insurance, and imposing a substantial penalty on those who don't.

Individuals would be required to have insurance coverage consistent with the standards set by the government. They can obtain it through their employers or through other means. A tax penalty would be imposed on those who do not have insurance. The amount of the penalty currently being proposed equates to between 50 and 100 percent of the average cost for a health insurance policy meeting the basic standards. It might be in the form of a 2.5 percent income tax penalty reported on one's tax return. While some individuals are exempt from these requirements, the general result is that individuals who are currently uninsured will be forced to pay either premiums or tax penalties under the new system. Either way, their costs can increase by several thousand dollars annually.

In order to offset some of the insurance costs imposed on lower-income individuals, new credits or subsidies based on premiums paid and co-payments paid would be provided. These credits would be available on a pro-rated basis to persons with income up to 400 percent of the federal poverty level. The concept of the premium credit is to keep premium costs below a specified percentage of income, ranging from 1 percent for the lowest income individuals to 12.5 percent for those at 400 percent of the federal poverty level.

Employers would have to make an election annually either to offer health coverage to employees or to pay an assessment based on payroll or number of employees. The employer's health plan would have to meet minimum government standards for coverage, and the employer would have to contribute a minimum percentage of the total cost toward the coverage - between 60 and 72.5 percent in current versions. If an employer elects not to offer a qualifying health plan, a penalty would be imposed. The Senate version would impose a $750 penalty for each employee not covered by the employer. The House version imposes an assessment of up to 8 percent of payroll if the employer doesn't provide coverage. While there are some exemptions from these requirements for small businesses, employers generally will be forced to choose between providing insurance or paying what amounts to a substantial new payroll tax.

Small employers that provide insurance would be able to offset some of the costs with new tax credits or other subsidies. Details of the subsidies vary widely, but can amount to thousands of dollars per covered employee.

Health Insurance Exchanges

A new national marketplace, or multiple new state-based marketplaces, would be established at which individuals and employers could compare options and purchase health insurance coverage that meets government standards. A health insurance exchange, or gateway, would govern the insurance marketplace, making sure that participating insurers are operating according to regulation, and that consumers are receiving the information they need to make their insurance choices. The exchange or gateway would be the institution responsible for administering premium credits for individuals. It is also through the exchange or gateway that a public-option insurance plan would be made available to individuals, if a public option is part of the ultimate reform proposal.

Minimum Requirements for Insurance Policies

Just a few of the mandatory requirements regarding insurance policies would have a significant impact on access, on coverage, and on cost. First, the current proposals all call for prohibiting exclusion from coverage for pre-existing conditions, and require guaranteed issuance and renewability for all policies. Second, premium rating would be restricted, so that the range of premiums charged to different people (based on age, for instance) for the same coverage would be narrowed. Third, coverage for preventive care services would have to be provided without any cost sharing from the insured. Several other proposals are included that would govern allowable levels of cost-sharing, medical loss ratio, and other important aspects of insurance. Taken all together, these requirements will drive dramatic changes in premium-setting for health insurance policies.

Expansion of Medicaid

The current legislative proposals would all substantially expand the Medicaid program. This could be a very costly part of the reform. Eligibility for Medicaid would be expanded to all individuals with incomes up to 133 percent (House proposal) or 150 percent (Senate proposal) of the federal poverty level, and could add 11 million more people to the 50 million already on the rolls. The federal government would pick up the tab for the entire expansion for a period of years before it shares the responsibility, as is normal, with the states.

Tax Changes

In addition to the tax penalties imposed on individuals and employers that don't comply with the insurance mandate, a number of different tax changes have been under consideration to help finance health care reform. A surtax has been proposed on higher income taxpayers. It would be an add-on to the income tax, at rates from 1 percent to 5.4 percent. The 1 percent rate would apply to singles with income above $280,000 and to joint filers with income above $350,000. The 5.4 percent rate would apply to singles with income above $800,000 and to joint filers with income above $1,000,000. (Note that this surtax would kick in at the same time that top marginal rates would automatically increase from 33 and 35 percent to 36 and 39.6 percent.)

Another tax being considered, but not yet included in any proposed bill, is a tax on employer-provided health benefits. Currently, such benefits are not included in the taxable income of employees. Many who are involved in the health care reform debate support changing the tax code so that these benefits (or at least a portion of them) would be included in an employee's gross wages and, thus, in his or her taxable income. Don't be surprised if this tax change is included in any proposal ultimately considered by Congress.

Other tax changes being reviewed by our lawmakers include the following:

• An excise tax imposed on insurers that issue high-end health care plans;
• Limitations on the deduction for medical expenses and/or other itemized deductions;
• Increasing alcohol excise taxes;
• Imposing a new excise tax on sugar-sweetened beverages; and
• Expanding the Medicare tax to unearned (investment) income.

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