Paul Ryan: Part 4 - A Closer Look at H.R. 3200


As part of a continuing series on unpacking the specific components of H.R. 3200, I will focus today’s column on a number of mandates imposed upon individuals and employers, as well as subsidies aimed to offset the burdens of these mandates, and tax increases aimed to offset the costs of the new government spending.

Earlier posts on the first 128 pages of H.R. 3200 can be found here: Paul Ryan on H.R. 3200

Specific page numbers can be cross-referenced in the legislative text found here:

H.R. 3200 - America’s Affordable Health Choices Act of 2009

DIVISION A, TITLE II, SUBTITLE C: “Individual Affordability Credits”

Section 241 (pages 128 – 132) provides for “affordability credits”, or subsidies, to pay for insurance premiums or annual out-of-pocket health care costs. Individuals with incomes up to 400% of the federal poverty line are eligible for these subsidies, which can only be applied to insurance plans offered in the national Health Insurance Exchange. After two years where the subsidies are limited to “basic” plans, the Health Choices Commissioner would establish a process to allow the subsidies to be used for enhanced and premium plans within the Exchange.

Section 242 (132-135) clarifies the eligibility requirements for the affordability credits. Individuals eligible for these credits must be enrolled in an Exchange-participating plan, must have incomes below 400% of the poverty limit, and must not be eligible for Medicaid. Employees who are offered employer coverage are ineligible for these credits within the Exchange. Although after the second year of operation, these employees can become eligible if they can demonstrate that their employer-provided plan would cost more than 11% of their income.

Sections 243-245 (135-143) provide additional information on the requirements and income determinations with respect to the affordability credits. The “affordable premium amount” and “affordability cost-sharing credit” would be determined on a sliding scale based on income level. The income determinations would be made by the Health Choice Commissioner using data from individuals most recent tax returns.

Section 246 (143) prohibits individuals not lawfully present in the United States from obtaining affordability credits. Concerns have been raised that the citizenship verification requirement in this section is not extended to include the receipt of taxpayer-subsidized health benefits.

DIVISION A, TITLE III: “Shared Responsibility” 

Titles III and IV (pages 143-215) include a host of requirements, mandates, penalties, and tax increases (or “revenue provisions”), which are part of an effort to expand coverage and provide sufficient revenues to pay for these new costs. As noted in an earlier post, these revenue provisions fail to match the increased spending in this legislation. The question on how to pay for this legislation remains a hotly contested topic, and additional changes to these sections in anticipated when Congress returns in September.

Sections 311-314 (143-151) require employers to provide a government-qualified level of coverage to their employees, or pay a tax on 8% of wages. If the employer chooses to offer coverage for their employees, the employer’s minimum contribution must be 72.5% of the premium for individual coverage, and 65% of the premium for family coverage.

Sections 321-324 (152-167) provides amendments to existing law and additional rules for employers to ensure the “pay-or-play” mandate complies with ERISA, the Internal Revenue Code, and the Public Health Service Act.

DIVISION A, TITLE IV: “Amendments to the Internal Revenue Code of 1986”

Section 401 (167-179) establishes the individual mandate, under which individuals that do not purchase “acceptable” health coverage will pay an additional 2.5% tax on their adjusted gross income. Acceptable coverage includes “grandfathered” individual and employer plans, Medicare, Medicaid, military and veteran plans, and coverage obtained in the Exchange.

Sections 411-412 (179-188) provide the changes in the tax code to establish the “pay-or-play” mandate introduced in Section 311 above. Employers could either “play” by offering qualified coverage to their employees, or the employer would be required to “pay” an 8% payroll tax. Businesses with annual payroll below $250,000 would be exempt from this payroll tax. If employers fail to follow the rules governing an offer of coverage, an additional excise tax will be leveled against the employer.

Section 421 (188-194) provides for a tax credit equal to 50% of the amount paid by a small employer for employee health coverage. This credit is phased out for employers with 10 to 25 employees and for employers with an annual wages of $20,000 to $40,000 per year.

Section 431 (194-197) permits the Exchange to receive taxpayer return information from the IRS to help determine subsidy eligibility.

Section 441 (197-204) imposes a “health care surcharge” on households with annual income above $350,000 (joint filers) and $280,000 (single). The level of this surcharge – or tax – would begin at 1% for households earning between $350,000 and $500,000 (joint); increase to 1.5% for incomes between $500,000 and $1,000,000; and extend to 5.4% for income above $1 million. In the event that health cost savings are not achieved, the surcharge for the first two rates would increase to 2% and 3%, respectively.

Section 442 (204) delays the implementation of worldwide interest allocation, adding nine additional years to the phase-in of this tax rule. Note: In the House Ways and Means Committee, an additional provision was added to this part of the bill that would disallow the use of distributions from Health Savings Accounts (HSAs), Flexible Spending Arrangements (FSAs), and Health Reimbursement Arrangements (HRAs) for tax-free purchases of over-the-counter drugs. This provision is not included in the linked bill text above, but was added shortly before H.R. 3200 passed the Ways and Means Committee on July 17, 2009.

Sections 451-461 (204-215) include additional changes to the tax code, limiting the treaty benefits for certain companies and codifying the economic substance doctrine. While these provisions are unrelated to health care, they are designed to raise revenues to offset the new spending found elsewhere in H.R. 3200.

This brings us to page 215 of the 1017-page bill. The next division of H.R. 3200 covers numerous changes – large and small – to Medicare and Medicaid. 

As always, your feedback is important to me, and I’d encourage you to write, call or participate in one of my 19 listening sessions and community forums in the weeks ahead. For my contact information and for an updated listening session schedule, please visit:

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