Â Â Â Â Here is a summary of the revenue effects of H.R. 4872, the Reconciliation Act of 2010, based upon an examination of the reports released Thursday by the Congressional Budget Office (CBO) and the Joint Committee on Taxation (JCT).
Â Â Â Â Tomorrow the House of Representatives will vote on H.R. 4872, the Reconciliation Act of 2010, along with the Senate bill enacting health care financing reform.Â Donny Shaw of GovTrackInsider discusses the bill and the reconciliation process here.Â Here is aÂ section-by-section analysisÂ prepared by House staff.Â Â A majority vote in favor of the both bills tomorrow would send only the Reconciliation Bill over to the Senate; the Senate health care reform bill would at that point have been adoped by both houses of Congress.Â A simple majority in the Senate is all that would beÂ needed to pass the Reconciliation Act.Â President Obama would then presumably sign both bills into law.
Â Â Â Â Reconciliation bills may only deal with revenue matters – so how does the Reconciliation Bill of 2010 alter the finances of the health care reform bill passed by the Senate?Â Four documents address that question: the CBO report of March 18, 2010 andÂ JCT report of March 18, 2010 evaluating the Reconciliation Bill and the CBO report ofÂ December 19, 2009 and JCT report of December 19, 2009, evaluating the Senate bill.Â
Â Â Â Â On December 19, 2009, the CBO estimated that the Senate health care bill would reduce federal deficits by $118 billion between 2009 and 2019.Â The CBO report eleased on March 18, 2010Â concludes that the Reconciliation Act would trim an additional $20 billion from the budget, for total savings of $138 billion over ten years.Â How are those savings achieved?
Â Â Â Â A comparison of the two CBO reports reveals that theÂ Reconciliation Bill will substantially increase subsidies to individuals, families, and states both for the purchase of health insurance and federal funding of Medicaid, in the amount of $69 billion over ten years.Â (The Senate Bill spends $871 billion on coverage – the Reconciliation Bill increases that to $940 billion).Â The Reconciliation Bill also spends an additional $20 billion over ten years to close the "donut hole" for prescription drugs under Part D of Medicare, but those costs are offset by an equal amont of reduced spending for Medicare Advantage required by the Reconciliation bill.
Â Â Â Â The principal difference isÂ on the revenue side of the ledger.Â To pay for the increase in coverage, the Reconciliation bill includes a net increase in taxes – but the reforms are paid for in very different ways than the original Senate bill.Â According to the JCT reports of December 19 2009 and March 18, 2010, the original Senate bill raised most of its funds by means of a tax on high-end health insurance plans – $149 billion.Â That amount is reduced to only $32 billion in the present plan, and that tax does not commence until the year 2018, giving participants eight years to adjust their health insurance coverage plans.Â Instead, the JCT reports indicate that the Reconciliation bill will derive most of its revenue from an increase to the Medicare tax – both by increasing the rate that people earning over $250,000 annually will pay, and by including unearned income (interest, dividends, rent, and royalties) in the calculation of income for the Medicare tax.Â The Senate Bill expected to raise $86 billion through this method – the Reconciliation Bill will raise $210 billion over ten years.Â In addition, the Reconciliation Bill eliminates a tax credit for manufacturers of unprocessed biofuels, raising another $23 billion over ten years.Â The net change is that the Reconciliation Bill will increase revenues by more than $39 billion over the Senate bill.
Â Â Â Â The Reconciliation Bill also imposes higher fees on employers who elect not to provide health insurance to their employees.Â The minimum amount that such employers would pay is $2000 per employee.Â (This provision would apply only to employers with more than 50 employees, and the fee does not apply at all to the first 30 employees).Â This measure is expected to generate $24 billion more than the Senate bill would have.
Â Â Â Â The final difference between the Senate Bill and the Reconciliation Bill is with respect to the effect of each bill on other tax revenues.Â The CBO reports indicate that the Senate Bill was expected to reduce other tax revenues by $65 billion, but under the Reconconciliation Bill this amount would be only $44 billion.Â Â This is the last line item in Table 4 of the 2009 CBO report and Table 2 of the 2010 report.Â Both line items are referenced by footnote f of each respective table.Â I do not know what tax revenues this item is referring to.
Â Â Â Â In summary, the Reconciliation bill increases payments for health care coverage by $69 billion, decreases the tax on high-end health insurance plans by $117 billion, increases the Medicare tax on high-income earners by $124 billion, increases taxes on certain biofuel manufacturers by $23 billion, increases the penalty on employers who do not provide health insurance by $24 billion, and achieves other tax savings of $21 billion.Â Taking other changes into account, the net effect is that spending goes up by about $70 billion and taxes and fees by about $90 billion, meaning that this bill will reduce the deficit by about $20 billion over 10 years – or $2 billion per year.
Â Â Â Â Why do members of the House want these changes?Â They wanted to make it easier for people earning less than 250% of the federal poverty level – families earning less than $55,000 annuallyÂ - to purchase high quality health insurance.Â They also wanted to encourage businesses with more than 50 employees to provide health insurance.Â Finally, they wanted the cost of providing health insurance to the lower middle class to be borne by wealthy taxpayers, not by persons with high-end health insurance plans.Â The Reconciliation Bill does not include a public option, but it does tilt the bill more towards the original House bill.
Â Â Â Â Â Visit Professor Huhn's website on Health Care Financing Reform for access to current legislation as well as studies and reports on various aspects of health care reform.