What You Need to Know About the Health Reform Bills

After months of deliberation and horse-trading, the Senate's version of health reform passed along party lines this week.

The Senate bill includes key differences when compared with the health care reform bill the House passed in November. Those contrasts need to be worked out in conference committee negotiations before Congress votes on a final bill. Such a tally will not occur until early 2010.

Learning about the House and Senate bills can help you understand how health care negotiations might affect your health coverage—and, ultimately, your wallet.

Major differences

• Key ways the Senate bill differs from its House counterpart include:
  No "public option." Unlike the House bill, the Senate bill does not contain plans for a health plan run by the federal government and designed to compete with private-sector insurers.
• Insurance exchanges set up by states, not the federal government. Both bills contain provisions for insurance exchanges, which are regulated marketplaces where the uninsured can buy coverage. The exchanges regulate what must be covered under plans and how much insurance companies can increase premiums annually. However, the Senate bill provides for exchanges administered by individual states, while the House bill has a national exchange.
• Abortion coverage restrictions. In the Senate version, states may prohibit insurance exchanges from including plans that cover abortions, and government dollars cannot be used to fund abortion coverage. (The Senate bill does allow people who receive government subsidies to pay for abortion coverage out of their own funds.) By contrast, the House version prevents anyone who receives subsidies for individual insurance from choosing a plan that covers abortion procedures.

• Expanded payroll tax in place of surtax. The Senate version does not include a 5.4 percent surtax on individuals earning more than $500,000, or families earning more than $1 million -- a key source of funds for the House version of the bill. Instead, the Senate bill adds an additional 0.9 percent payroll tax (raising the tax from 1.45 percent to 2.35 percent) on individuals earning more than $200,000 and families earning more than $250,000.
• Excise tax on "Cadillac" plans. Employer-sponsored health insurance plans valued at more than $8,500 for an individual or $23,000 for a "family plan" would be taxed an additional 40 percent above those thresholds as part of the Senate plan. (The tax would not apply to plans in high-cost regions or plans that cover workers in professions that pose higher health risks, such as firefighters or police.) The tax would be paid by the health insurance plan or administrator rather than directly by individuals. It is designed to discourage high-cost or so-called "Cadillac" insurance plans cited by some experts as one cause of rising health care costs. The House bill doesn't contain the tax.
• Additional fees and taxes. The Senate bill includes a series of fees and taxes on drug makers, medical device manufacturers, insurance companies and indoor tanning services. The House bill only includes an excise tax on medical devices sold in the U.S.

Major similarities

Key similarities between the Senate and House legislation include the following provisions:

• Establishment of "insurance exchanges." Both bills create insurance exchanges to provide a tightly regulated marketplace for the uninsured to buy coverage. Plans sold on the exchange must provide minimum levels of coverage and a simplified range of options stipulated in the bills.
• Caps on annual out-of-pocket medical costs. Limits are placed on the amount of money insurers may require policyholders to pay out of pocket for doctor's visits, medical procedures and other types of care.
• Pre-existing condition protections. Insurers cannot exclude an individual from insurance coverage because of a pre-existing medical condition.

• Ban on rescission. Insurers are prohibited from engaging in "rescission" -- the practice of retroactively denying a claim based on an error in the covered person's insurance application, except in cases of fraud.
• Creation of an appeals process. Insurers must establish a process allowing people to challenge denied insurance claims.
• Individual insurance mandate. Both bills require Americans to purchase at least a bare-bones health insurance policy. People who refuse to do so will incur financial penalties that differ in the House and Senate bills.
• Subsidies for those who can't afford insurance. Subsidy amounts vary according to income and family size.
• Penalties for businesses that break rules. Fines and fees would be assessed to large- and medium-sized businesses that don't offer health insurance plans to their employees.
• Curbs on Medicare spending. Both bills include provisions that curb Medicare spending over the next 10 years.
• Tax credits. Credits are offered to small businesses that offer health coverage to employees.

Regardless of how you feel about the bill, don't expect to feel the effects right away if it passes. Most of the provisions described above wouldn't take effect until 2014, although the aforementioned 0.9 percent payroll tax would begin in 2013.