Tax Benefits for Health Insurance and Expenses: Overview of Current Law and Legislation

How tax policy affects health insurance and health care spending is a perennial subject of discussion in Washington. The issue is prompted by the size of the tax benefits, by their effect on the cost and allocation of health care resources, and by interest in comprehensive tax and health care reform. Health care reform proposals currently being considered could make important tax changes.

Current law contains significant tax benefits for health insurance and expenses. By far the largest is the exclusion for employer-paid coverage, which employees may omit from their individual income taxes. The exclusion also applies to employment taxes and to health benefits in cafeteria plans. (The exclusion should be distinguished from the deduction employers may take for the payments they make and other costs they incur.) Some see ending or capping the exclusion as a way to raise revenue that might be used to pay for health care reform. Other important tax benefits include the following:

• Self-employed taxpayers may deduct 100% of their health insurance, even if they do not itemize deductions,

• Taxpayers who itemize may deduct insurance payments and other unreimbursed medical expenses to the extent they exceed 7.5% of adjusted gross income,

• Some workers eligible for Trade Adjustment Assistance or receiving a pension paid by the Pension Benefit Guarantee Corporation can receive the Health Coverage Tax Credit (HCTC) to purchase certain types of insurance,

• Four tax-advantaged accounts are available to help taxpayers pay their health care expenses: Flexible Spending Accounts, Health Reimbursement Accounts, Health Savings Accounts, and Medical Savings Accounts,

• Voluntary Employees’ Beneficiary Association plans (VEBAs), are vehicles for prefunding retiree health benefits on a tax-advantaged basis for certain groups of workers, particularly unionized workers,

• Coverage under Medicare, Medicaid, CHIP, and military and veterans health care programs is not considered taxable income, and

• A temporary COBRA premium subsidy was included in the American Recovery and Reinvestment Act of 2009.

By lowering the after-tax cost of insurance, these tax benefits generally help extend coverage to more people; they also lead some people to obtain more coverage than they otherwise would. The incentives influence how coverage is acquired: the uncapped exclusion for employer-paid insurance, which can benefit nearly all workers and is easy to administer, is partly responsible for the predominance of employment-based insurance in the United States. In addition, the tax benefits increase the demand for health care by enabling insured people to obtain services at discounted prices; this in turn contributes to rising health care costs. Because many people would likely obtain insurance without tax benefits, they can be an inefficient use of public dollars. When insurance is viewed as a form of personal consumption, most tax benefits appear to be inequitable because taxpayers’ savings depend on marginal tax rates. When viewed as spreading catastrophic economic risk over multiple years, however, basing those savings on marginal rates might be justified as the proper treatment for losses under a progressive tax system.

Date of Report: December 14, 2009
Number of Pages: 25
Order Number: RL33505
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Medical Marijuana: Review and Analysis of Federal and State Policies

The issue before Congress is whether to continue the federal prosecution of medical marijuana patients and their providers, in accordance with the federal Controlled Substances Act (CSA), or whether to relax federal marijuana prohibition enough to permit the medicinal use of botanical cannabis products when recommended by a physician, especially where permitted under state law.

Thirteen states, mostly in the West, have enacted laws allowing the use of marijuana for medical purposes, and many thousands of patients are seeking relief from a variety of serious illnesses by smoking marijuana or using other herbal cannabis preparations.

Two bills relating to the therapeutic use of cannabis have been introduced in the 111th Congress. The Medical Marijuana Patient Protection Act (H.R. 2835), which would allow the medical use of marijuana in states that permit its use with a doctor’s recommendation, was introduced on June 11, 2009, by Representative Barney Frank. The bill would move marijuana from Schedule I to Schedule II of the CSA and exempt from federal prosecution authorized patients and medical marijuana providers who are acting in accordance with state laws. Also, the Truth in Trials Act (H.R. 3939), a bill that would make it possible for defendants in federal court to reveal to juries that their marijuana activity was medically related and legal under state law, was introduced on October 27, 2009, by Representative Sam Farr.

For the first time since District of Columbia residents approved a medical marijuana ballot initiative in 1998, a rider blocking implementation of the initiative was not attached to the D.C. appropriations act for FY2010 (H.R. 3288), apparently clearing the way for the creation of a medical marijuana program for seriously ill patients in the nation’s capital.

The Obama Administration Department of Justice, in October 2009, announced an end to federal raids by the Drug Enforcement Administration of medical marijuana dispensaries that are operating in “clear and unambiguous compliance with existing state laws.” This move fulfills a pledge to end such raids that was made by candidate Obama during the presidential campaign.

Claims and counterclaims about medical marijuana—much debated by journalists and academics, policymakers at all levels of government, and interested citizens—include the following: Marijuana is harmful and has no medical value; marijuana effectively treats the symptoms of certain diseases; smoking is an improper route of drug administration; marijuana should be rescheduled to permit medical use; state medical marijuana laws send the wrong message and lead to increased illicit drug use; the medical marijuana movement undermines the war on drugs; patients should not be arrested for using medical marijuana; the federal government should allow the states to experiment and should not interfere with state medical marijuana programs; medical marijuana laws harm the federal drug approval process; the medical cannabis movement is a cynical ploy to legalize marijuana and other drugs. With strong opinions being expressed on all sides of this complex issue, the debate over medical marijuana does not appear to be approaching resolution.

This report will be updated as legislative activity and other developments occur.

Date of Report: December 16, 2009
Number of Pages: 46
Order Number: RL33211
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The Medical Device Approval Process and Related Legislative Issues

The central medical device issue for Congress is how best to help speed medical devices to consumers if they are safe and effective, and correct them or keep them from consumers if they are not. A medical device may be anything from a tongue depressor to a pacemaker. In order to be legally marketed in the United States, medical devices must be approved by the Food and Drug Administration (FDA), the agency responsible for protecting the public health by assuring the safety, efficacy, and security of human medical devices and other products. FDA’s Center for Devices and Radiological Health (CDRH) is primarily responsible for medical device review. The regulation of medical devices can affect their cost, quality, and availability in the health care system.

During reviews, FDA classifies devices according to the risk they pose to consumers. If a premarket review is warranted by the potential risk, a manufacturer must demonstrate that its device is safe and effective, or substantially equivalent to a device already on the market. FDA requires product manufacturers to register their facilities, list their devices with FDA, and follow general controls requirements. Manufacturers of FDA-approved devices are required to report serious adverse events associated with the use of their devices to FDA. In addition, tracking is required for some medical devices.

The medical device approval process is currently funded through direct FDA appropriations from Congress, and increasingly through user fees collected from applicants. FDA’s authority to collect user fees, originally authorized in 2002 (P.L. 107-250), has been reauthorized in five-year increments. It will next expire on October 1, 2012, under the terms of the FDA Amendments Act of 2007 (P.L. 110-85).

A number of medical device-related topics are of interest to Members of the 111th Congress, and have prompted the introduction of legislation with pertinent provisions. Three such topics are included in major health reform bills: medical device-related taxes as a source of revenue for health reform (H.R. 3962 and S.Amdt. 2786 to H.R. 3590), a national medical device registry (H.R. 3962), and reporting requirements for gifts to physicians (H.R. 3962 and S.Amdt. 2786 to H.R. 3590).

Device-related topics addressed in other legislation include liability and preemption, as highlighted by Riegel v. Medtronic and Wyeth v. Levine (S. 540/H.R. 1346, H.R. 1086, S. 45, and S. 1324); the 501(k) clearance and device approval processes (H.R. 1321/S. 391); importation and inspection (H.R. 759 and S. 882); advertising (S. 301/H.R. 3138 and H.R. 3261); the use of unapproved devices (H.R. 3261); the regulation of laboratory tests, which are also known as in vitro diagnostic products, or IVDs (H.R. 1699 and H.R. 1452); issues specific to certain devices, situations, diseases, or conditions (S. 717, S. 819, H.R. 1878, S. 586/H.R. 1483, H.R. 1380, H.R. 1236, H.R. 1142, S. 422/H.R. 1032, H.R. 1021, H.R. 554, S. 332, S. 254/H.R. 574, S. 236, H.R. 463, S. 21, H.R. 2088, and H.Res. 577); and certain other issues (H.R. 1531/S. 1089, H.R. 1737, S. 1733, S. 1591/H.R. 3560, H.R. 2454/S. 1733, H.R. 3012, H.R. 3090 and H.R. 3242).

This report contains the legislative history of medical device regulation, describes FDA’s approval process for medical devices, and provides an overview of the medical device-related legislative issues facing Congress.

This report will be updated as events warrant.

Date of Report: December 14, 2009
Number of Pages: 30
Order Number: RL32826
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A Comparative Analysis of Private Health Insurance Provisions of H.R. 3962 and S.Amdt. 2786 to H.R. 3590

On November 7, 2009, the U.S. House of Representatives approved health insurance reform legislation, H.R. 3962, the Affordable Health Care for America Act. The “Senate Amendment” (S.Amdt. 2786 to H.R. 3590, the Patient Protection and Affordable Care Act) was offered by Senate Majority Leader Harry Reid on November 21, 2009. This report compares the private health insurance provisions of H.R. 3962 and the Senate Amendment.

Individuals currently receiving health insurance through a large employer would likely see the least direct impact from the bills. The largest changes would occur in the private health insurance market for small businesses and for nongroup coverage (currently, insurance obtained directly from an insurance company, broker or agent). The most substantial of these reforms would not take effect until 2013 under H.R. 3962, and in 2014 under the Senate Amendment. At full implementation, the required private health insurance market reforms should be fully in place, along with subsidies to certain low- and moderate-income individuals ineligible for Medicaid. At full implementation, the bills would require most individuals to obtain and, in the House bill, for larger employers to offer and contribute toward health insurance. Although the Senate Amendment does not have an explicit “employer mandate,” employers who do not offer coverage could face substantial penalties.

Shortly after enactment of either of the bills, all private health insurance would be subject to some new requirements. For example, health insurers could not offer coverage with unreasonable annual or lifetime limits on benefit payouts, and they could not cancel (“rescind”) policies unless the policyholder had committed fraud. Many other provisions are detailed in the report.

After full implementation, although prior coverage could generally continue without meeting new requirements (at least for a period of time), new coverage would have to meet federal standards stipulated in the bills—and different requirements may apply depending, for example, on whether the coverage is nongroup or employment-based. The bills also call for an exchange available in each state, through which individuals not enrolled in (or, primarily in the Senate Amendment, not eligible for) other coverage, as well as small businesses, could choose from private health insurance plans. In addition, under both bills, individuals obtaining coverage through an exchange could also choose a “public option” established by the Secretary of Health and Human Services (HHS). The public option would be appropriated start-up funding, but would ultimately have to be self-sustaining through the premiums charged. Under both bills, payments to providers (doctors, hospitals) would be established through negotiations with the Secretary. Unlike the House bill, the Senate Amendment would allow states to prohibit a public option in their exchange. Both bills also provide start-up funding for cooperatives, which would be new, member-run, nonprofit entities that could offer health insurance through exchanges.

Under the Senate bill, any participation in the exchange requires verifying citizenship or legal residence status. Under H.R. 3962, such verification is only required for premium and cost-sharing subsidies. Under both bills, such subsidies would only be available through an exchange, for qualifying low- to moderate-income individuals. Both bills would prohibit the subsidies from paying any part of elective abortions. The House bill would also prohibit subsidies from going to a plan that covers elective abortions. Besides the subsidies to individuals, small businesses would be eligible for tax credits to help them pay toward their employees’ coverage. The Congressional Budget Office (CBO) estimated the bills’ costs would be fully offset in both the 5- and 10-year budget windows by increased excise taxes and other revenues and decreased spending.

Date of Report: December 16, 2009
Number of Pages: 79
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Behavioral Health Care in Reform Legislation

The 111th Congress has been considering various proposals that aim to improve the quality of and access to health care, including aspects of behavioral health care such as treatment for mental illnesses and substance abuse disorders. Behavioral health care-related proposals include

requiring behavioral health coverage, expanding the provider workforce, improving behavioral health care coordination, and increasing funding for research on mental illness. Specifically, the proposals include provisions that would expand the scope of behavioral health parity, authorize grants to train behavioral health care providers, and provide for research on postpartum depression. Of these provisions, the one with possibly the most far-reaching effect would be that of expanding the scope of behavioral health parity.

In 2008, Congress passed the Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008 (MHPAEA), signed into law on October 3, 2008 (P.L. 110-343). This law expanded previous federal requirements for behavioral health coverage (which required parity for behavioral health coverage with that for physical illnesses in terms of annual and lifetime treatment benefits). Generally, the provisions of MHPAEA apply at the beginning of the plan year beginning after October 3, 2009. In April 2009, the Departments of Treasury, Labor, and Health and Human Services sought feedback from insurers and behavioral health providers about the costs and benefits of MHPAEA, impact on small employers, additional paperwork burdens, and regulatory concerns with regard to MHPAEA’s various provisions. The departments expect to publish final regulations for the implementation of MHPAEA by January 1, 2010. Under H.R. 3962 (Affordable Health Care for America Act), which passed the House on

November 7, 2009, qualified health benefits plans (which would be required to provide behavioral health services) would be required to comply with the MHPAEA rules regarding the amount, duration, and scope of mental health and substance abuse benefits. This is also true of the minimum qualifying coverage specified in the Senate amendment (S.Amdt. 2786) in the nature of a substitute to H.R. 3590 (Patient Protection and Affordable Care Act). MHPAEA would also require carve-out programs (which are specialized managed care organizations that administer the behavioral health benefits for an insurance plan) to comply with parity requirements in the same manner that the insurer would have been required.

Four other provisions in the health care reform proposals affect the behavioral health care system. First, there are provisions that aim to address the issue of behavioral health provider shortage by providing for the establishment of grant programs to train and educate such providers. Second, some provisions aim to address the issue of affordability and lack of coordination of behavioral health care through the co-location of primary and specialty care services with behavioral health services. Third, some provisions aim to address research needs in specialty areas of mental health care by authorizing studies on postpartum depression. Fourth, a provision in the House bill would establish federally qualified behavioral health centers.

Date of Report: December 15, 2009
Number of Pages: 11
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Health Insurance Continuation Coverage Under COBRA

Most Americans with private group health insurance are covered through an employer, coverage that is generally provided to active employees and their families, and may be extended to retirees. A change in an individual’s work or family status can result in loss of coverage. In 1985, Congress enacted legislation to provide temporary access to health insurance for qualified individuals who lose coverage due to such changes. Under Title X of the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA, P.L. 99-272), an employer with 20 or more employees must provide those employees and their families the option of continuing their coverage under the employer’s group health insurance plan in the case of certain events. The coverage, usually for 18 months, can last up to 36 months, depending on the nature of the triggering event. Employers who fail to provide the continued health insurance option are subject to penalties.

Since the start of the recession in December 2007, the number of unemployed persons has increased by 7.6 million to 15.1 million, and the unemployment rate has doubled to 9.8%. Many of these individuals were eligible to continue their employer-sponsored health insurance, but did not elect coverage under COBRA because of the cost. On average, employees pay 27% of the premium for family coverage under an employer-sponsored health insurance plan. Those extending coverage through COBRA can be required to pay up to 102% of the premium, which averaged $13,643 for a family in 2009. Congress addressed this issue under Title III of the American Recovery and Reinvestment Act (P.L. 111-5), which included a temporary 65% subsidy for COBRA premiums. The subsidy is available to individuals who meet the income test and who are involuntarily terminated on or after September 1, 2008, and before January 1, 2010.

The 111th Congress is currently considering whether to extend COBRA benefits beyond the current coverage. Some argue that even with the subsidy, high premiums make COBRA coverage unaffordable to many. Others maintain that in requiring employers to provide former employees with the option of continuing their health insurance coverage, COBRA has resulted in extra costs for employers (in the form of increased premiums for employers’ group health insurance policies), as well as added administrative burdens.

This report provides background information on continuation health insurance under COBRA and on the COBRA population. It will be updated as events warrant.

Date of Report: December 18, 2009
Number of Pages: 11
Order Number: R40142
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Medicare Program Changes in the Senate Amendment in the Nature of a Substitute to H.R. 3590

Medicare is a federal program that pays for covered health services for most persons 65 years and older and for most permanently disabled individuals under the age of 65 years. The rising cost of health care, the impact of the aging baby boomer generation, and declining revenues in a

weakened economy continue to challenge the program’s ability to provide quality and effective health services to its 45 million beneficiaries in a financially sustainable manner.

On November 21, 2009, the Senate Amendment in the nature of a substitute to H.R. 3590, the Patient Protection and Affordable Care Act was offered. This report, one of a series of CRS products on this Senate Amendment, examines the Medicare related provisions in this Amendment. Estimates from CBO on the Senate Amendment indicate that net reductions in Medicare direct spending may approach $400 billion from FY2010 to 2019. Major savings are expected from constraining Medicare’s annual payment increases for certain providers, basing payment rates in the Medicare Advantage program on average bids, reducing payments to hospitals that serve a large number of low-income patients, creating an independent Medicare

Advisory Board to make changes in Medicare payment rates, and modifying the high-income threshold adjustment for Part B premiums. A new Hospital Insurance tax for high wage earners would also raise approximately $54 billion over 10 years.

Other provisions in the Amendment address more systemic issues such as increasing the efficiency and quality of Medicare services, and strengthening program integrity. For example, the Amendment would establish a national, voluntary pilot program that would bundle payments for physician, hospital and post-acute care services with the goal of improving patient care and reducing spending. Another provision would adjust payments to hospitals for readmissions related to certain potentially preventable conditions. Additionally, the Amendment would increase funding for anti-fraud activities, and subject providers and suppliers to enhanced screening before allowing them to participate in the Medicare program.

The Senate Amendment would also improve some benefits provided to Medicare beneficiaries. For instance, Medicare prescription drug program enrollees would receive a 50% discount off the price of brand name drugs during the coverage gap (the “doughnut hole”) and the coverage gap would be reduced by $500 in 2010. Other provisions would expand assistance for some low-income beneficiaries enrolled in the Medicare drug program, and eliminate beneficiary copayments for certain preventive care services.

Date of Report: December 8, 2009
Number of Pages: 69
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Federal Employees Health Benefits Program: Available Health Insurance Options

The Federal Employees Health Benefits Program (FEHBP) provides health insurance coverage to about 8 million people. FEHBP provides many health insurance plan options for enrollees, including several nationally available fee-for-service plans, locally available Health Maintenance Organizations (HMOs), and, since 2003, various high-deductible health insurance plan options combined with a tax-advantaged account. Beneficiaries can use their tax-advantaged accounts to cover qualified medical expenses. Also, since July 2003, FEHBP-eligible active employees can place their own pre-tax wages into a Health Care Flexible Spending Account (HCFSA) to cover qualified medical expenses. Since 2007, eligible individuals may also elect supplemental dental and vision plans. While enrollees have a range of choices, they must decide which options best match their needs, the amount of their wages they choose to contribute to health insurance, and how risk-averse they are to potential out-of-pocket costs.

The program is administered by the Office of Personnel Management (OPM), which is statutorily given the authority to contract with qualified carriers offering plans and to prescribe regulations necessary to carry out the statute, among other duties.

The health reform bill H.R. 3962 passed by the House of Representative and the bill being considered by the Senate, Senate Amendment 2786 in the nature of a substitute to H.R. 3590, may require certain changes to be made to FEHBP plans or to employing agencies, in order to comply with any requirements on plans, employers, and individuals. These bills focus on simultaneously expanding private and public coverage options, which has varying impacts on FEHBP.

Date of Report: December 9, 2009
Number of Pages: 30
Order Number: R40978
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A Comparative Analysis of Private Health Insurance Provisions of H.R. 3962 and S.Amdt. 2786 to H.R. 3590

This report compares many of the private health insurance provisions of H.R. 3962 and the Senate Amendment. For each of the major private health insurance reforms, the report first gives a narrative description of the context and current law, then describes where H.R. 3962 and the Senate Amendment make similar reforms and how their approaches differ. The narrative is then followed by more detailed tables comparing these provisions, arranged by topic.

Date of Report: December 11, 2009
Number of Pages: 77
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Medicare Coverage of Clinical Preventive Services

Congress established the Medicare program in 1965 in response to concerns that many seniors did not have health insurance, or had insurance that only covered hospital inpatient services. Historically, Medicare covered only diagnostic and treatment services, not preventive services provided in the absence of illness. Generally, adding coverage of a preventive service required statutory authority. Since 1980, Congress has established Medicare coverage for several preventive services in law. Recently, Congress gave the Secretary of HHS limited authority to cover new Medicare preventive services administratively. While many view preventive services as a means to improve the quality of health care by preventing illness, disability, and death, some have touted prevention as a means to contain health care costs. However, whether expanding coverage or utilization of preventive services would actually save money for Medicare is a matter of debate. While these screenings may be effective in preventing premature death or other unwanted outcomes in some beneficiaries, their broad use may incur a net cost for the Medicare program, rather than savings.

Efforts have also been made to determine, for the purposes of coverage decisions, whether a given preventive service is effective, and whether its use in clinical practice is likely to benefit the patient, without posing potential risks from the procedure itself. Congress has in the past sought the advice of expert panels to make these assessments. These panels have had differing mandates, however, and none is explicitly charged with evaluating preventive services for the purposes of Medicare coverage. For example, current Medicare coverage of preventive services does not always comport with evidence-based recommendations of a prominent expert panel, the U.S. Preventive Services Task Force (USPSTF). A recent USPSTF recommendation regarding screening mammography has refocused congressional attention on the appropriate role of advisory panels with respect to Medicare coverage decisions.

Among those seeking to reform the nation’s health care delivery system, quality and cost of preventive services are key topics of discussion. In November 2009, the House passed the Affordable Health Care for America Act (H.R. 3962). Also in November, Senate Majority Leader Harry Reid introduced the Patient Protection and Affordable Care Act (an amendment to H.R. 3590). Each is a comprehensive proposal incorporating measures reported by multiple committees of jurisdiction in each chamber. Each proposal would reduce or eliminate most cost sharing for preventive services under Medicare. The proposals differ in certain other approaches, but each would, in general, expand Medicare coverage of preventive services. The Congressional Budget Office (CBO) has scored most of these proposals as incurring a net cost for Medicare.

This report first discusses the legislative and administrative history of Medicare coverage of preventive services. Then it discusses several advisory panels that have evaluated the effectiveness of preventive services, Medicare coverage of these services, or utilization of these services. Next, it discusses whether or not the use of preventive services would be cost-saving or cost-effective for Medicare, and whether utilization of preventive services can be improved. The report then presents relevant proposals in pending health reform legislation. Finally, the Appendix compares current Medicare coverage of preventive services with current USPSTF recommendations. This report will be updated to reflect legislative and other activity.

Date of Report: December 9, 2009
Number of Pages: 30
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Medicare Physician Payment Updates and the Sustainable Growth Rate (SGR) System

Each year since 2002, the statutory method for determining the annual updates to the Medicare physician fee schedule, known as the sustainable growth rate (SGR) system, has resulted in a reduction in the reimbursement rates (or a “negative update”). With the exception of 2002, when a 4.8% decrease was applied, Congress has passed a series of bills to override the reductions. However, these actions have required almost yearly attention from the Congress.


The SGR system was established because of the concern that the Medicare fee schedule itself would not adequately constrain overall increases in spending for physicians’ services. While the fee schedule limits the amount that Medicare will pay for each service, there are no limits on the volume or mix of services. The SGR system was intended to serve as a restraint on aggregate spending. If expenditures over a period are less than the cumulative spending target for the period, the update is increased. However, if spending exceeds the cumulative spending target over a certain period, the update for a future year is reduced, with the goal to bring spending back in line with the target.


In the first few years of the SGR system, the actual expenditures did not exceed the targets and the updates to the physician were close to the Medicare economic index (MEI, a price index of inputs required to produce physician services) in the first two years (2.3% in 1998 and 1999, compared with a MEI of 2.2% in 1998 and 2.3% in 1999). For the next two years, in 2000 and 2001, the actual physician fee schedule update was more than twice the MEI for those years
(5.5% update vs. MEI of 2.4% in 2000, 5.0% update vs. MEI of 2.1% in 2001). However, beginning in 2002, the actual expenditure exceeded allowed targets and the discrepancy has grown with each year, resulting in a series of ever-larger cuts under the formula.


Some criticisms of the SGR system point to purported flaws in the technical details behind the formula, while others have just expressed general displeasure with the resultant outcome. Although several modifications have been proposed to replace the SGR system, no proposal has garnered unanimity of support and almost all proposals would be expensive to implement compared against the current baseline, which necessarily assumes that significant cuts to the fee schedule will occur.


Legislative activity in the current session of Congress includes S. 1776 and H.R. 3961. S. 1776 would have (1) set the update to the conversion factor at 0% for 2010 and in subsequent years, and (2) sunset the SGR system immediately. On October 21, 2009, the cloture motion to proceed to the bill was not invoked by the Senate by a vote of 47-53. The key feature of H.R. 3961 is that it would create two categories of physician services (evaluation, management, and preventive services in one category with all other physician services in the other), each with its own separate target growth rate and conversion factor update. CBO has estimated that implementing the bill would increase direct spending by about $210 billion over the 2010-2019 period. On November 19, 2009, the House passed H.R. 3961 by a vote of 243-183.


Date of Report: November 20, 2009


Number of Pages: 14


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Medicaid and Children’s Health Insurance Program (CHIP) Provisions in Affordable Health Care for America Act (H.R. 3962)

The 111th Congress has devoted considerable effort to health reform that seeks to increase health insurance coverage for more Americans and help to control costs, while improving quality and patient outcomes. The Affordable Health Choices for America Act (H.R. 3962) was introduced in the House of Representatives on October 29, 2009. H.R. 3962 is based on H.R. 3200, America’s Affordable Health Choices Act of 2009, originally introduced on July 14, 2009, and reported separately on October 14, 2009, by three House Committees—Education and Labor, Energy and Commerce, and Ways and Means. H.R. 3962 was further modified by the manager’s amendment posted on November 3, 2009. H.R. 3962, as passed by the House on November 7, 2009, proposes sweeping reforms of the health care delivery system, described in the three divisions. Division A, “Affordable Health Care Choices,” focuses on reducing the number of uninsured, restructuring the private health insurance market, setting minimum standards for health benefits, and providing financial assistance to certain individuals and small employers. Division B, “Medicare and Medicaid Improvements,” proposes modifications to the largest two public health insurance programs to make them consistent with provisions in Division A and to amend other provisions in existing federal statute. Division C, “Public Health and Workforce Development,” would amend and expand existing health professions and nursing workforce programs. A Republican alternative amendment in the nature of a substitute, dated November 3, 2009, is addressed in a separate CRS report.


This report summarizes the major provisions affecting Medicaid and CHIP in H.R. 3962 (as passed), including modifications made by the manager’s amendment. The report focuses primarily on provisions in Division B, Title VII—Medicaid and CHIP, plus selected provisions in Title IX—Miscellaneous Provisions. It also describes selected sections of Titles I and II of Division D, the Indian Health Care Improvement Act Amendments of 2009, related to improving access to Medicaid and CHIP for American Indians and Alaskan Natives. Due to the breadth of the changes proposed in H.R. 3962, some provisions of Divisions A and C also could affect Medicaid, but these are not Medicaid-specific. The Division B provisions would modify existing law and add new provisions affecting Medicaid eligibility; benefits; financing; waste, fraud, and abuse; payments to territories; demonstrations and pilot programs; and other miscellaneous Medicaid components. A major provision in Division B would expand Medicaid eligibility for traditional and non-traditional beneficiary categories up to 150% of the federal poverty level. The federal government would fully finance the costs for certain of these expanded beneficiary categories for periods before 2015, decreasing to 91% beginning in 2015. With respect to benefits, Medicaid programs would be required to cover preventive services, and would be allowed to cover nurse home visitation and birthing center services.


There are a number of financing changes that would affect Medicaid under H.R. 3962, including reducing Medicaid disproportionate share hospital (DSH) payments by $10 billion by FY2019, increasing prescription drug rebates, and raising provider payments for certain primary care services. Additional waste, fraud, and abuse provisions affecting Medicaid and the Children’s Health Insurance Program (CHIP) include requirements to deny payment for health care acquired conditions, require new Medicaid Integrity Program evaluations and reports, and require states to implement a national correct coding initiative, similar to the Medicare program. Under H.R. 3962, spending caps for the territories would be increased, and a series of demonstrations would be approved, including a medical home program, an accountable care organization program, and a program for stabilization of emergency medical conditions by mental disease institutions.


Date of Report: November 20, 2009


Number of Pages: 50


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Health Care Reform and Small Business

An issue in the development of the new health care reform legislation is the effect on small business. One concern is the effect of a “pay or play” mandate to require firms to provide health insurance for their employees or pay a penalty. Current proposals have exemptions for small businesses, and also propose to provide subsidies for purchasing insurance. Economic theory suggests that health insurance costs (and any penalties) should be passed on to labor income, but that may be more difficult for employers of lower-wage workers. Furthermore, average wages are generally smaller for small firms (except for the smallest). A second concern is the potential effect of the surcharge on high-income individuals, which has been proposed as a funding mechanism in the House proposal, and its effects on owners of small businesses.


Both the House bill (H.R. 3962, passed on November 14, 2009) and the Senate bill (H.R. 3590) would exempt small businesses from penalties. The House bill would apply no penalties to firms with $500,000 or less in payroll, and the Senate bill would exempt firms with 50 or fewer employees. As a result, very few smaller businesses would be affected. The House bill would exempt over 80% of firms and the Senate bill would probably exempt about 95%. The House plan would exempt fewer firms over time because the exemption is not indexed. The share of firms that would not be affected either because they are exempt or because they already offer insurance would be larger, probably around 95% to 98%. About 20% of employees work for firms that were estimated to be affected.


The penalties in the Senate bill are per-employee flat dollar amounts of $750 for firms that do not offer coverage, triggered if one or more employees are eligible for the premium credit for lower income families. They are relatively small compared with the cost of health insurance. Firms that offer insurance also will pay penalties if employees receive the premium credit (available if the firm pays less than 60%of the cost), the lesser of $3,000 per employee receiving the credit or $750 for all employees. The penalties appear smaller than those in the House proposals, which are calculated as a percentage of payroll. The proposals also provide temporary credits to subsidize small employers’ contributions to insurance for lower-income employees that depend on firm size and employee compensation. The credits are the same in the two bills (except that the Senate bill allows a smaller credit for nonprofits), and would be as much as 50% of the employer’s cost. The subsidy for taxable firms is provided as a nonrefundable income tax credit and would not benefit firms with no income tax liability; the Senate bill has a separate 35% credit for nonprofits.


Because most small businesses are subject to the individual income tax, high-income business owners could be affected by the proposed surcharge that would be imposed (for couples) at 5.4% on incomes over $1 million ($500,000 for singles) in the House bill. The surcharge affects 0.3% of taxpayers; 1.2% of unincorporated businesses are affected. Concerns have been raised that the surcharge on adjusted gross income would have adverse effects on small business and, in turn, on job creation. The top 1% of taxpayers receive more than half of the income of unincorporated business, but some income is passive (reflecting investment rather than operating a business). Some is active income received by professional services (e.g., doctors, attorneys, financial advisors). These activities may be less related to job creation, often associated with new entrepreneurial firms. The job creation justification is problematic on several grounds. It would be possible to exclude certain types of business income from the surcharge at a small cost if passive income and certain income (e.g., finance, insurance, real estate, professional services) were not eligible for the exclusion.


Date of Report: November 25, 2009


Number of Pages: 13


Order Number: R40775


Price: $29.95


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Health Care Providers' Religious Objections to Medical Treatment: Legal Issues Related to Religious Discrimination in Employment and Conscience Clause

This report discusses situations in which religious objections may be raised in health care. The report examines the legal protections for individuals with religious and moral objections to their employment duties offered by the Free Exercise Clause of the First Amendment, Title VII of the Civil Rights Act of 1964, and federl conscience clauses. Finally, the report analyzes the two sets of protections and how they may affet health care providers who have religious objections to medical procedures.

In the 111th Congress, versions of health reform legislation in the House (H.R. 3962) and the Senate (amendment in the nature of a substitute to H.R. 3590) also contain conscience rotections for health care entities' objections to abortion. The Senate legislation also provides protections for health care entities that refuse to participate in assisted suicide.

Date of Report: November 20, 2009

Number of Pages: 10

Order Number: R40722

Price: $29.95

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Tax Options for Financing Health Care Reform

This report reviews the revenue raisers proposed in the House and Senate bills currently being debated. Other financing proposals are presented including those made by the Obama Administration and those introduced in earlier congressional work. The final sections discuss other proposals suggested by the round-table discussion participants.

Order No. R40648

27 pages

$29.95

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Private Health Insurance Provisions in the Senate Amendment in the Nature of a Substitute to H.R. 3590, The Patient Protection and Affordable Care Act


This report summarizes key provisions affecting private health insurance in the Senate Amendment in the Nature of a Substitute to H.R. 3590, the Patient Protection and Affordable Care Act, (the "Amendment"). The Amendment reflects the merged Senate health reform bills, S. 1679, the Affordable Health Choices Act (as ordered reported by the Senate Committee on Health, Education, Labor and Pensions on July 15, 2009), and S. 1796, America's Healthy Future Act of 2009 (as ordered reported by the Senate Committee on Finance on October 19, 2009). The Senate voted to take up the measure on November 21, 2009, after invoking cloture on the motion to proceed to consider the legislation. H.R. 3590 with the Senate amendment is now before the Senate for consideration.


Order No. R40942
42 pages
$29.95


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