Senator Baucus Mark-up of Senate Health Care Reform Bill

On September 16, 2009, Senate Finance Committee Chairman Sen. Max Baucus (D-Mt.) released his comments, or "marks", on a draft of the health care reform bill prepared by the Senate Finance Committee. It bans insurance companies from denying coverage based upon pre-existing conditions and mandates all Americans to obtain some form of health insurance. It does not include a public insurance option but allows the government to provide seed money to set up private, non-profit health care co-operatives.

The bill has not yet been introduced to the Senate or reconciled with the House's health care reform bill, America's Affordable Health Choices Act of 2009, H.3200, introduced July 31, 2009. Some marks of Sen. Baucus directly affect employers who offer health insurance coverage to their employees. The following is just a brief overview of some of those marks.

Safe Harbor Benefits received under a qualified small employer's cafeteria plans would still be eligible to be treated as a cafeteria plan if the plan excludes employees 1) under 21; 2) worked fewer than 1000 hours the preceding year or has worked less than one year; or 3) covered by a collective bargaining agreement. "Eligible small employers" would be employers who have employed an average of 100 or fewer employees a day for the past 2 years. If an employer is an eligible small employer and continues the cafeteria plan, it would remain an eligible small employer until it employs an average of 200 employees a day in one year.

Small Business Tax Credit Currently, the cost to an employer of providing health insurance coverage to its employees is tax deductible. Under Sen. Baucus's marks, the employer may be eligible for a tax credit instead of a deduction from gross income. To qualify for this tax credit, the employer would have to have 25 or fewer full-time employees during the year. Those employees could not earn an average of more than $40,000.00 a year. The phased-in tax credit would be up to 50% of the premiums the employer paid for employee coverage.

Employer Offer of Health Insurance Coverage Employers of 50 or more employees who do not offer coverage to employees would be required to pay a fee for each employee who qualifies for a tax credit for health insurance.

Excise Taxes In 2014, there would be an excise tax of 35% imposed upon employer-sponsored health coverage that exceeds threshold amounts: $8,000 for individual coverage and $21,000 for family coverage. The tax would be imposed pro rata on the issuers of the insurance and the plan administrator on amounts over the threshold. The employer must calculate the amount that is taxable to each insurance issuer and the plan administrator. Regardless as to whether an excise tax is imposed, employers would be required to report on the employee's W-2 form the value of the benefits the employee received from the employer.

Flexible Spending Arrangements An employee who reduces cash compensation to have that amount available for use as reimbursement for medical expenses (Flexible Spending Arrangement, or "Health FSA") currently does not pay any tax on the reduction in compensation. Under Sen. Baucus's marks, Health FSAs would be limited to $2,000 a year.