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

Oct. 7, 2009— -- 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.

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:

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.