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Health Care and Appropriations Update

Health Care Reform

After nearly 14 months of debate on health care reform the House passed the Affordable Health Care for All Americans Act on March 21 by a vote or 219-212.  The Senate had previously passed the legislation on Christmas Eve by a vote of 60-39.  President Obama signed the bill into law on March 23. 

Also on March 21 the House passed H.R. 4872, The Reconciliation Act of 2010, with a vote of 220-211.  The Reconciliation package makes “fixes” to the Health Care bill as previously passed by the Senate.  The Senate passed H.R. 4872 by March 25 by a vote of 56-43.  While the total cost of health care reform is estimated at $940 billion over the next decade it is also expected to reduce deficits by $143 billion by 2019. 

Below are highlighted sections included in the Reconciliation package.

Sec. 1002.  Individual responsibility.  Modifies the assessment that individuals who choose to remain uninsured pay in three ways: (a) exempts the income below the filing threshold, (b) lowers the flat payment from $495 to $325 in 2015 and from $750 to $695 in 2016 and (c) raises the percent of income that is an alternative payment amount from 0.5 to 1.0% in 2014, 1.0 to 2.0% in 2015, and 2.0 to 2.5% for 2016 and subsequent years to make the assessment more progressive.

Sec. 1003.  Employer responsibility.  Improves the transition to the employer responsibility policy for employers with 50 or more full-time equivalent workers (FTE) by subtracting the first 30 full time employees from the payment calculation (e.g., a firm with 51 workers that does not offer coverage will pay an amount equal to 51 minus 30, or 21 times the applicable per employee payment amount). The provision also changes the applicable payment amount for firms with more than 50 FTEs that do not offer coverage to $2,000 per full-time employee.  It also eliminates the assessment for workers in a waiting period, while maintaining the 90-day limit on the length of any waiting period beginning in 2014.

Sec. 1101.  Closing the Medicare prescription drug “donut hole”.  Provides a $250 rebate for all Medicare Part D enrollees who enter the donut hole in 2010.  Builds on pharmaceutical manufacturers' 50% discount on brand-name drugs beginning in 2011 to completely close the donut hole with 75% discounts on brand-name and generic drugs by 2020.

Sec. 1102.  Medicare Advantage payments.  Freezes Medicare Advantage payments in 2011.  Beginning in 2012, the provision reduces Medicare Advantage benchmarks relative to current levels.  Benchmarks will vary from 95% of Medicare spending in high-cost areas to 115% of Medicare spending in low-cost areas.  The changes will be phased-in over 3, 5 or 7 years, depending on the level of payment reductions.  The provision creates an incentive system to increase payments to high-quality plans by at least 5%.  It also extends CMS authority to adjust risk scores in Medicare Advantage  for observed differences in coding patterns relative to  fee-for-service.

Sec. 1301.  Community Mental Health Centers.  Establishes new requirements for community mental health centers that provide Medicare partial hospitalization services in order to prevent fraud and abuse.

Sec. 1402.  Medicare tax.  Modifies the tax to include net investment income in the taxable base.  Currently, the Medicare tax does not apply to net investment income.    The Medicare tax on net investment income does not apply if modified adjusted gross income is less than $250,000 in the case of a joint return, or $200,000 in the case of a single return.  Net investment income is interest, dividends, royalties, rents, gross income from a trade or business involving passive activities, and net gain from disposition of property (other than property held in a trade or business).  Net investment income is reduced by properly allocable deductions to such income.

Sec. 1404.  Brand name pharmaceuticals.  Delays the industry fee on sales of brand name pharmaceuticals for use in government health programs by one year to 2011, and increases revenue raised by the fee by $4.8 billion.

Sec. 1405.  Excise tax on medical device manufacturers.  Delays the tax by two years to 2013 and converts the industry fee to an excise tax on the first sale for use of medical devices at a rate of 2.9 percent.  Exempts from the tax Class I medical devices, eyeglasses, contact lenses, hearing aids, and any device of a type that is generally purchased by the public at retail for individual use.

Sec. 1406.  Health insurance providers.   Delays the industry fee by 3 years to 2014 and modifies the annual industry fee for revenue neutrality.  In the case of tax-exempt insurance providers, provides that only 50 percent of their net premiums that relate to their tax-exempt status are taken into account in calculating the fee.  Provides exemptions for voluntary employee benefit associations (VEBAs) and nonprofit providers more than 80 percent of whose revenues is received from Social Security Act programs that target low income, elderly, or disabled populations.

FY 2011 Appropriations

Both the House and Senate Appropriations Subcommittees have begun holding hearings on the President’s FY 2011 Budget Request. The House is expected to turn its attention to budget and appropriations matters once members return from the spring recess on April 12.

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