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Health care reform bill 101: Who will pay for reform?

If the health care reform vote succeeds today, the $940 billion bill would be the biggest change to domestic policy in a generation. The rich and the health industry would pick up most of the tab.

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A special agent looks into the files of health care fraud cases at a warehouse near Miami on Nov. 23, 2009. Cracking down on health care fraud, which costs Americans billions of dollars a year, is one way the health care reform bill plans to pay for its $940 billion price tag. The US House of Representatives is scheduled to vote on the health care reform bill Sunday.

Carlos Barria/Reuters

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For the United States, health care reform would come with a hefty co-pay.

As we’ve noted throughout this series on what’s in the health care bill, the legislation, if the vote succeeds, would represent the most sweeping change in national domestic policy in a generation.

Among other things, it would provide or subsidize health coverage for 32 million currently uninsured people. That’s more than one-tenth of the entire population of the US.

Healthcare 101: What the bill means to you

Change like that doesn’t come cheap. More specifically, change like that would cost about $940 billion over its first 10 years, according to the Congressional Budget Office.

Add these two things together, throw in $40 billion worth of tax credits for small business, and you’re pretty close to the bill’s top line for expansion of health coverage.

So where’s the cash to pay for this coming from? Remember, CBO says this bill will actually cut the deficit over 10 years. That means it has to raise a little more money than it will spend.

The answer is that the money will be provided by new taxes, fees on industries involved in health care, and cuts in projected spending growth for existing government health efforts, primarily Medicare.

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Here are specifics on some of the biggest money raisers:

Higher Medicare taxes on rich people

If you are an individual making more than $200,000 a year, or a married couple making more than $250,000 a year, get ready to pay more for your Medicare if health care reform passes.

First of all, your Medicare Part A (that’s hospital insurance) tax rate would be increased by 0.9 percent, to 2.35 percent. Second, the bill creates an entirely new tax of 3.8 percent on unearned income (dividends, interest, stuff like that) for people in those same income brackets.

The good news is that this would not take effect until Jan. 1, 2013. And it is a big money raiser, truth be told. The Joint Committee on Taxation estimates this would bring in $210 billion between 2013 and 2019.

New tax on expensive health insurance

They used to call this the “Cadillac tax,” but it’s been pared back enough so it might better be called the “Chevy with leather and A/C” tax.

The health care bill would impose an excise tax on insurers of employer-sponsored health plans that cost more than $10,200 annually for individual coverage, or $27,500 annually for family coverage. The tax in question would be 40 percent of the cost of the plan that exceeds those dollar thresholds.

This tax would not kick in until 2018. The JCT figures it would bring in around $32 billion in its first two years.

Fees on health care industries

The Obama administration figures it is only fair to slap some fees on health care industries, since they’d be getting lots of new customers if health care reform passes. So after negotiations with some big sectors, the White House struck a number of deals.

  • Drug manufacturers would pay the US a total of $16 billion between 2011 and 2019.
  • Health insurers would pay $47 billion over the same period.
  • Medical device manufacturers would pay a 2.9 percent excise tax on the sale of any of their wares, beginning Jan. 1, 2013.

The tanning tax

OK, it’s not a big money raiser, but we could not resist mentioning that health care reform would establish a tax of 10 percent on indoor tanning services. (Outdoor tanning services remain untaxed, of course.) This would raise $2.7 billion between 2010 and 2019.

Medicare cuts

Government payments to Medicare Advantage – plans run by private insurers that are an alternative to traditional Medicare – would be reduced by $132 billion over 10 years under the health care reform bill. (Those plans now get around 14 percent more per person than traditional Medicare does.)

Medicare payments for home health care would also be reduced by $40 billion over 10 years. And cuts in certain payments to hospitals would raise another $22 billion by 2019.

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Health Care Reform Bill 101:

Introduction: What the bill means to you

Part 1: Who must buy insurance?

Part 2: Who gets subsidized insurance?

Part 3: What's a health 'exchange'?

Part 4: How long will reform take?

Part 5: Who will pay for reform?

Part 6: What will it mean for business?

Part 7: What does it mean for kids and families?

Part 8: What does it mean for seniors?

Part 9: Rules for preexisting conditions

Part 10: Will it make health care more effective?


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