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Reid Health Care Bill Funded By Medicare Cuts, Tax on Cadillac Plans

Written by TaxFoundation.org

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Other Financing Provisions of $848 Billion Plan Include Increase in Medicare Tax Rate for High-Income Earners, Tax Hikes on Health Care Sector

Washington, DC, November 23 2009 - The $848 billion health care reform legislation unveiled by Senate Majority Leader Harry Reid last week is financed primarily through cuts to Medicare provider payments (which would save $330.6 billion, or 34 percent of the bill's 10-year cost) and a 40 percent excise tax on high-value "Cadillac" health plans (which would generate $149.1 billion, or 15 percent of the bill's cost), according to the Tax Foundation's review of the Congressional Budget Office's (CBO) analysis.  

Reid's plan also includes a 1/2 percentage point increase in the Medicare tax rate for high-income earners ($53.8 billion, or 6 percent of the bill's cost) and various tax hikes imposed on the health care sector, including fees on manufacturers and insurance companies ($102 billion, or 10 percent). The bill would reduce the deficit by $130 billion.  

"Senator Reid's proposal has scaled back the 'Cadillac' tax on high-valued health insurance plans from the version offered by the Senate Finance Committee, but he's made up some the difference with a Medicare tax increase on high-wage earners," said Tax Foundation Senior Economist Gerald Prante, who analyzed both Joint Committee on Taxation (JCT) and CBO scores of the bill.  

"Like the Senate Finance Committee plan and House Speaker Nancy Pelosi's bill, Reid's proposal includes cuts to Medicare spending and penalties on individuals who do not purchase insurance and on employers who do not offer insurance for workers. The gross price tag of Reid's bill is about $200 billion less than the House plan."  

A comparison of the funding provisions in the House and Senate plans, along with pie charts breaking down the financing, is available on the Tax Policy Blog.  

Penalties on employers and individuals for no insurance would generate $36 billion, or 4 percent of the Senate legislation's cost. Other financing provisions include other taxes and revenues ($156 billion, or 16 percent) and other net health care spending cuts ($150.4 billion, or 15 percent).  

By comparison, Pelosi's $1.05 trillion plan depends more on Medicare cuts to providers ($440 billion, or 37 percent of the bill's 10-year cost), and a 5.4 percent surtax on high-income individuals ($460 billion, or 39 percent). Penalties on employers and individuals for no insurance make up the next largest percentage ($168 billion, or 14 percent) of the legislation's financing, followed by other taxes and revenues ($88 billion, or 7 percent), fees and taxes on medical devices, manufacturers and insurers ($22 billion, or 2 percent) and other net health care spending cuts ($14 billion, or 1 percent).

The bill would reduce the deficit by $138 billion.  

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