Four Ways Obama Would Fund Health Reform Plan

Janice Simmons, for HealthLeaders Media , February 24, 2010

The healthcare reform proposal released by President Obama on Monday has some similarities—and some differences—to the Senate reform bill concerning how costs will be covered in the $950 billion bill.

Obama's plan includes these four ways to fund the nearly $1 trillion plan.

Cadillac Tax. Back is the so-called "Cadillac Tax" that would impose a 40% tax on the value of higher cost health plans above a certain amount. In the bill, passed by the Senate in December, that amount was $8,500 for individuals and $23,000 for families, which then would have raised $150 billion over 10 years.

However, a subsequent meeting with labor leaders at the White House in January—who thought the tax disproportionately weighed against many of their members with higher cost policies—negotiated trigger rates that were slightly higher.

In President Obama's reform plan, the amount was increased to $10,200 per individual and $27,500 per family, with the start-up date moved to 2018 to 2013. The Congressional Budget Office has estimated that this policy will reduce many high-cost premiums in the long run.

The proposed tax, though, still has opposition in the House. Rep. Joe Courtney (D-CT), who spearheaded a petition signed by 193 House members who opposed the tax, said that while the White House proposal "makes significant progress" on the excise tax, it should be set aside and studied rather than imposing a tax eight years in the future, he said.

"Delaying the tax by nearly a decade and hoping that it doesn't hurt working families is like throwing a dart in the dark."

Increase the Medicare Hospital Insurance (HI) tax base. The White House proposal adopts a Senate approach to increasing the HI tax on high-income taxpayers. The President's proposal calls for adding a 2.9% assessment—equal to combining employer and employee shares of the existing HI tax—on income from interest, dividends, annuities, royalties, and rents.

As proposed, this would apply to taxpayers with incomes above $200,000 for singles and $250,000 for married couples filing jointly. The additional revenues from the tax on earned income would be credited to the HI trust fund, and the revenues from the tax on unearned income would be credited to the Supplemental Medical Insurance (SMI) trust fund.

More pharmaceutical money. The White House proposal continues to call for a $23 billion assessment in the Senate bill over 10 years—plus another $10 million—starting in 2011. This would help begin to close the so-called doughnut hole by 2020. Currently with the "doughnut hole" provision, Medicare stops paying for prescriptions after the plan and the beneficiary have spent $2,830 on prescription drugs and begin paying after out of pocket spending reaches $4,550.

Device manufacturers tax. The White House proposal, noting that the medical device industry "stands to gain from expanding health insurance coverage," calls for a $20 billion excise tax beginning in 2013. This excise tax would "yield the same revenue" as the "fees" called for in the House and Senate bills.

Janice Simmons is a senior editor and Washington, DC, correspondent for HealthLeaders Media Online. She can be reached at

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