Debate continues over health care reform and tax incentives during Congress' summer recess

Congress' summer recess has been anything but quiet, as lawmakers address concerned Americans throughout the country at town hall meetings on controversial health care reform. A number of health care reform proposals are on the table, as well as revenue raisers to pay for those reforms.

Four committees, House Ways and Means, House Education and Labor, House Energy and Commerce, and Senate Health, Education, Labor, and Pensions (HELP) have all approved health care reform bills along party lines. The Senate Finance Committee (SFC) is the only committee continuing bipartisan discussions as it continues to slowly draft its health care reform bill.

Excise tax

Although the SFC had been expected to mark up a bill before it recessed in August, this plan fell apart as negotiations broke down over how to pay for health care reform. The SFC has rejected a House-proposed surtax and is alternatively considering imposing an excise tax on insurers. This excise tax would apply to high-cost health insurance plans. Members are reportedly looking at taxing �Cadillac plans� valued at more than $10,000 for individual coverage and more than $25,000 for family coverage.

Surtax

The House is expected to approve a gradual surtax on higher-income individuals to fund health care reform, despite strong opposition from the GOP and some Democrats. The surtax marked-up by the Ways and Means Committee in July would generally start at one percent for single individuals with modified adjusted gross income (AGI) exceeding $280,000 and married couples filing joint returns with modified AGI exceeding $350,000. The proposed surtax would reach 5.4 percent for married couples filing jointly with modified AGI exceeding $1 million and single individuals with modified AGI exceeding $800,000.

Small employers

Bills approved by the House committees and the Senate HELP Committee would mandate that employers offer health insurance to their employees or pay an additional payroll tax. Additionally, employer-provided health insurance would also have to meet certain minimum standards or employers whose plans do not meet the standards would be required to pay a penalty. All of the committees agree to provide relief to small employers but have not agreed on the scope of relief.

The most generous relief proposed to small employers comes from the House Energy and Commerce bill. Employers with annual payrolls of $500,000 or less would be exempt from providing health insurance coverage to their employees and would also be exempt from the additional payroll tax.

The House Ways and Means and House Education and Labor bills propose more targeted relief to small employers. Employers with annual payrolls not exceeding $250,000 would be exempt from the additional tax. Very small employers (generally businesses with fewer than 10 employees) would also be eligible for tax credits to offset the cost of health insurance. The Senate HELP bill, on the other hand, would provide tax credits to employers with fewer than 50 employees.

Congress returns to work on September 7th. Our office will continue to monitor important developments in the debate on health care reform and in connection with other pending tax laws.