Release & Commentary

SEPTEMBER 21, 2009

U.S Senate Finance Committee Releases Health Care Proposal

(Conner Strong's commentary on this release is included below.)

The US Senate Finance Committee released the framework of their expected proposal for national health care reform. The much anticipated announcement came from Committee Chairman Baucus (D-Montana) and is the culmination of months of high profile work. While final details are still emerging, we have performed a preliminary review of what the Committee is proposing. Highlights are as follows:

• Insurance Purchasing Cooperatives: The bill would establish state-based purchasing cooperatives as an alternative to a government insurance program (what has been referred to as the "public option") to compete with private insurers. The cooperatives are viewed as a more palatable alternative to the controversial public option. Their intent would be to provide more competition into the benefits arena and compete alongside the private insurance markets.
• Online Exchanges: The bill would establish online exchanges at the state, regional and/or national levels for small groups and individuals to access their insurance. The apparent intent here is to allow for greater competition across state lines and allow smaller employers to have more choices in insurance options.
• High Cost Insurance Policy Tax: Beginning in 2013, the proposal would levy a non-deductible excise tax of 35 percent on insurance companies and plan administrators for any health insurance plan that is above the threshold of $8,000 for singles and $21,000 for family plans. The tax would apply to the amount of the premium in excess of the threshold on self-insured plans and plans sold in the group market, but not to plans sold in the individual market. The threshold would be indexed for inflation, and a transition rule would increase the threshold for the 17 highest cost states for the first three years. The intent of this provision is to tax the most generous coverages and use the revenue to help pay the tab associated with covering the uninsured. The tax would of course be passed along to the policy holder by way of increased premiums.
• Health Insurance Provider Tax: The bill would impose an annual flat fee of $6 billion on the health insurance sector starting in 2010. This non-deductible fee would be allocated across the industry according to market share by insurer. It is believed that the law would set a prohibition against insurers simply passing this increased cost along to policy holders by way of higher premiums. The intent appears to be to use these fees to help pay for the cost of covering the uninsured and eat into insurer profits.
• Increased Penalty for use of Health Savings Account (HSAs) Funds for Non-qualified Medical Expenses: The bill would increases the additional tax for HSA plan withdrawals prior to age 65 that are not used for qualified medical expenses from 10 percent to 20 percent starting in 2010. Presumably, this increased penalty shall also be used to generate funds to pay for the cost of covering the uninsured.
• Limit Health Flexible Spending Account Contributions: The bill would limit the amount of contributions one can make to their health Flexible Spending Accounts (FSAs) to $2,000 per year beginning in 2013.

Conner Strong Commentary

According to the Committee Chairman's remarks, the Finance Committee is expected to further "mark up" the proposed bill next week where it is also expected that Senators from both parties will propose various changes and new amendments. According to media reports the current proposal is said to lack any Republican support. It is also reported by various outlets that the bill has lost the support of one key Democrat, Sen. Jay Rockefeller of West Virginia. It is believed that Sen. Rockefeller plans to offer an amendment that would create a government insurance option in place of the proposed cooperatives. This approach would mirror what the House of Representative's bill includes now.

In order to avoid a filibuster within the Senate that could stymie further movement, any bill shall need 60 votes for ultimate passage. There are however parliamentary provisions available within the Senate rules that can allow for a full vote without needing 60 votes for passage. This is considered a controversial option in the event non-partisan talks break off and 60 votes are not available. In this instance, certain rules could allow passage with a simple majority only. 

The health care debate continues to be fluid and the next several weeks will be critical in terms of whether a bill is passed with or without bi-partisan support. The impact to employers is still unclear although it is expected that larger employers would continue to offer group based coverage while smaller businesses may opt to participate in one of the government approaches.

For healthcare reform to take shape, the House and the Senate bills will need to come together at some point. As of now, the differences between the Senate and House are significant so there is much more work and debating to take place. Conner Strong shall continue to monitor major developments and issue important updates.

For more information, call your Conner Strong employee benefits representative.