Health care reform plans funded by new major tax, Medicare spending cuts

The two major health care reform proposals to emerge from Capitol Hill in recent weeks have similarities and major differences.

Both the House compromise unveiled by Speaker Nancy Pelosi last week and the version recently approved by the Senate Finance Committee rely on Medicare spending cuts, although the House plan would cut nearly $100 billion more, and both plans include one large new tax – a high-income surtax in the House version and a tax on high-value health insurance plans in the Senate version.

The $1.05 trillion House health care reform legislation includes net cuts to Medicare, which would save $472.8 billion, or 39 percent of the bill’s 10-year cost, and a 5.4 percent surtax on high-income individuals, which would generate $460.5 billion, or 38 percent of the bill’s cost, according to the nonpartisan Tax Foundation’s review of the Congressional Budget Office’s (CBO) analysis.

By comparison, nearly half of the $829 billion Senate Finance Committee plan is financed through Medicare cuts ($377.8 billion, or 41 percent of the bill’s 10-year cost), and 22 percent would come from an excise tax on so-called “Cadillac” health insurance plans, which would raise an estimated $201.4 billion over 10 years. The House plan would reduce the deficit by $104 billion and the Senate version by $81 billion.

Both the House and Senate proposals would impose a financial penalty on individuals if they do not buy health insurance, and both would force employers to pay a penalty to either the government or new “health exchanges” if they do not provide a government-approved health insurance plan to employees. In both cases, the House penalty is higher.

In the House plan, these “pay or play” provisions for employers make up the next largest percentage ($135 billion, or 11 percent) of the legislation’s financing, followed by a tax on medical devices and other health care revenue increases ($55 billion, or 5 percent), corporate income tax increases and other non-health revenues ($50.4 billion, or 4 percent) and a penalty on uninsured individuals ($33 billion, or 3 percent).

In the Senate Finance Committee plan, a tax on medical devices and other health care revenue increases make up the next largest financing percentage ($179.1 billion, or 20 percent), followed by corporate income tax increases and other non-health revenues ($100.1 billion, or 11 percent), net cuts to other health care spending ($26.3 billion, or 3 percent), “pay or play” provisions for employers ($23 billion, or 3 percent) and a penalty on uninsured individuals ($4 billion, or less than 1 percent).

The Tax Foundation is a nonpartisan, nonprofit organization that has monitored fiscal policy at the federal, state and local levels since 1937. For more information, please see Tax Foundation Fiscal Fact No. 200, “Comparing Financing of the House and Senate Health Care Reform Plans.”