Mandatory Coverage? New Taxes? What Health Care Overhaul Would Mean for Americans

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As senators debate and work to iron out the details of various health care bills, uncertainty remains about how an overhaul of the nation's health care system would actually affect Americans.

An estimate released late Wednesday by the Congressional Budget Office revealed that health care legislation drafted by the Senate Finance Committee, sometimes referred to as the Baucus bill after the committee's chairman, Sen. Max Baucus, D-Mont., would cover 29 million of the currently uninsured, ultimately achieving 94 percent coverage and costing a total of $829 billion over 10 years.

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But, what about bills drafted by other Senate and House committees? Differences abound, even among Democratic lawmakers who are leading overhaul efforts.

For instance, House Democrats say the final legislation has to have a so-called "public option" -- a government-run insurance plan that would compete with private insurers. Some Senate Democratic leaders, such as Baucus, say they need to pass a bill that will get the Republican nod as well, which would mean taking a public option off the table.

Beyond the legislative jargon, any overhaul is likely to have a significant impact on Americans' lives, even those who have never had to worry about coverage.

Here's a look at some key sticking points between Democrats and what they mean for Americans:

Tax on 'Cadillac Plans':

Baucus' plan would slap an excise tax on insurance companies for so-called Cadillac plans, high-value, generous insurance packages that include luxuries such as no co-payments and deductibles. Such plans are often sold to companies with older workers and high-risk employees and which, some people say, are big cost drivers.

Under Baucus' plan, insurers would pay tax on plans for which premiums exceed more than $8,000 for individual coverage and $21,000 for family coverage, starting in 2013.

Most Americans aren't covered by such plans. In 2009, the annual premiums for employer-sponsored health insurance averaged $4,824 for single coverage and $13,375 for family coverage, according to the Kaiser Family Foundation's 2009 Employer Health Benefits survey.

House Democrats have mulled a similar plan although none of the proposals on the table include such a provision. Being debated in the House is, instead, the idea of raising income taxes on upper-income individuals and families, rather than insurers.

Proponents of the tax say such high-end plans drive up costs of health care and the tax would help pay for the proposed overhaul. To alleviate some concerns, Baucus excluded many people who work in the public sector from this rule.

But critics, including some Republican lawmakers, say taxing insurance providers means taxing people because companies will simply pass on their new costs to people in the form of higher co-payments and deductibles. Many union members have been against the plan amid fears that it will impinge on their benefits package.

The change is not likely to have any impact in the short term unless insurance companies choose to spread the cost of the additional tax across their entire business, experts say.

"It will effectively end those insurance plans that would otherwise cost more than the upper limits," said Henry Aaron, a health care expert at the Brookings Institution in Washington, D.C. "For the average American, it means next to nothing."

But, in the long term, that may change. Because the premiums -- based on the current proposal -- would be gauged on the consumer price index rather than health insurance costs, which tend to rise faster than the former, more plans could be folded into the "Cadillac" category in the long haul.

"Because of the way the indexing works, it's likely that more plans over time will end up being caught in or considered to be a high-cost plan," said Jennifer Tolbert, principal policy analyst at the Kaiser Family Foundation. "The threshold for defining a high-cost plan is indexed to the consumer price index, whereas we know that health insurance premiums rise at a faster rather than that. It's hard to know."

It could be a while before that happens, experts say.

"A number of years would have to go by, probably many more than 10," for the average person to be affected by the proposed tax, Aaron said.

Mandatory Coverage

More than 15 percent of Americans do not have health coverage and the numbers continue to rise, according to the latest census. Nearly all Democrats are proposing to make health coverage mandatory, although there are still disagreements about what penalties would be imposed.

Both Senate committees are proposing a $750 yearly penalty on individuals who don't have coverage. The health committee wants to slap a similar fine on companies who don't provide coverage for their employees.

While this proposed shift will not affect 85 percent of the population, it will have a significant effect on the more than 46 million Americans who are uninsured.

Critics of mandatory coverage say it will put a burdensome onus on low-income individuals and households. Politically, some GOP lawmakers argue that it constitutes an additional tax and, essentially, goes against the president's promises of no additional taxes.

Proponents of the plan argue that it will encourage individual responsibility and that taxpayers won't have to bear the burden of the non-insured who are often treated at a much higher cost in emergency rooms.

"There's a bit of an unfairness about the current system in that people who elect to go uncovered still receive many benefits of insurance coverage," said Aaron of the Brookings Institution. "And, so I think this is simply a way of distributing more equitably the responsibilities and financial burden of having coverage."

The effect will depend on what kind of subsidies and financial aid is offered to low-income families to make health coverage affordable, analysts say.

"Except, in some states, there aren't available federal subsidies for insurance unless you argue that there's a big tax preference for employer-based insurance," said Tolbert of the Kaiser Family Foundation. "Providing federal subsidies for people to enable them to purchase health insurance would be a new initiative, a new benefit to people and it's pretty significant and pretty important in the context of individual mandate. ... You have to make sure it's affordable."

The Senate committees and House Democrats are proposing to provide subsidies to those individuals and families whose incomes are up to 400 percent of the federal poverty level. For a family of four, that was gauged at $22,050 for 2009. There are also provisions for tax breaks for small businesses and expansion of Medicaid.

Public Option

While the idea of a government-run insurance program may be a novelty to many Americans, it already exists in the form of Medicare.

Baucus left the public option out of the Finance Committee bill, saying that he wants to put forth legislation that will get enough bipartisan support to pass the Senate. Any legislation with a public option is unlikely to garner Republican votes. The Health Committee and House Democrats argue otherwise, with many members of the House insisting that the final bill will have a public option included.

Republicans say a government-run insurance plan would stifle all competition in the health care sector and it constitutes a form of government takeover.

Meanwhile, the U.S. public is divided on whether public option should be included, with slightly more than half saying they would support such a plan.

There's little clarity on what impact a public option plan would have, given the different proposals that are being circulated.

If a government plan is structured on the model of Medicare, it could have the impact of reducing overall costs and providing a lower cost alternative to Americans who are participating in a health exchange, said Tolbert of the Kaiser Family Foundation.

But it will be available to only those people who are uninsured and in those markets where there aren't competing private insurance companies. If the plan were to negotiate provide rates, then the focus wouldn't be so much on reducing costs, but more on providing choice of insurance coverage to Americans.

"There's no clarity at this point," Tolbert said. "There's quite a bit of uncertainty about if there will be a public option ... and what it will look like."

Instead of a government-run insurance plan, Baucus has suggested cooperatives, which are member-owned, nonprofit organizations that would compete with the private sector.

Insurance Market Overhaul

President Barack Obama has time and again assailed health insurance companies for denying patients care based on pre-existing conditions and high-cost medical treatments.

New rules in a health care overhaul could generate a significant shift in the insurance market. Across the political spectrum, members of both parties -- in what is one of the few points of agreement in the health care debate -- are calling for the removal of pre-existing conditions that deter many Americans from getting affordable coverage, if any at all.

"Insurance market reforms are critically important and have widespread appeal," said Aaron of the Brookings Institution. "Nobody likes it when a sick person is cut off and denied insurance."

Some people want insurance companies to remove limits on lifetime coverage altogether. Such measures could open up access for many uninsured Americans, but it could also boost costs because insurance companies cite these measures as a way to keep their costs down.

Next Steps

Now that the CBO estimate is complete, the Senate Finance Committee is poised to vote -- possibly as early as Friday -- on the bill proposed by Baucus. Senate Majority Leader Harry Reid, D-Nev., will lead an effort to merge the bill with a more liberal version passed July 15 by the Senate Health, Education, Labor and Pensions Committee.

Meanwhile, House Speaker Nancy Pelosi, D-Calif., is -- in what are likely to be tough negotiations -- attempting to merge the three different bills passed by committees in the House.

Once these negotiations end and each side has one bill, negotiators from all fronts, including the White House, will try to reconcile the Senate and House legislation in what will be an intense series of conference negotiations. The final version would then be voted on in the House and Senate.

Even if health care overhaul is achieved, almost everyone agrees the debate won't end with the president signing a bill. With some of the proposed changes being completely foreign to the U.S. health care system, their impact would be felt for a long time.

"It will be evolving," Tolbert said. "And it's going to take a number of years to implement the number of provisions that are contained in the bill. As time goes on, things will likely be modified and adjusted."

ABC News' Jonathan Karl contributed to this report.