Don't Mess With Taxes

After all the drama and political posturing, the health care reform bill approved yesterday by the Senate Finance Committee looks very much like it did when the process started months ago.

Most of what I blogged about previously in Senate health care, take two is in the bill that now goes to the full Senate. That includes:

Taxing High-Cost Insurance Policies
Expensive insurance policies, dubbed Cadillac plans, wouid face a nondeductible excise tax of 40 percent that would be levied on insurance companies and plan administrators beginning in 2013.

What is considered high-dollar? Any health coverage above the threshold of $8,000 for singles and $21,000 for family plans.

The threshold would be $1,850 higher for individual plans and $5,000 for family plans for workers with high risk jobs or for retirees aged 55 and up.

Limiting FSA Contributions
You could contribute a maximum of $2,500 per year to your workplace medical flexible spending accounts (FSA). This cap would kick in beginning in 2011.

That means you don't have to worry about the limit this open season when your select your 2010 health care benefits. But you might want to contribute as much as you can and schedule any uncovered medical procedures for next year to take full advantage of your FSA money.

Increasing Itemized Deduction Threshold
Now your medical expenses must be more than 7.5 percent of your adjusted gross income before you can deduct them. In 2013, that percentage would go to 10 percent of AGI. 

Older taxpayers (over age of 65) would be able to use the 7.5 percent limit through 2016.

Standardizing Medical Expense Definitions
Beginning in 2010, the definition of qualified medical expenses for Health Savings Accounts (HSAs), medical FSAs, and Health Reimbursement Arrangements (HRAs) will be the same as the one used for itemized medical deductions.

There would be an exception for doctor-prescribed over‐the‐counter medicines, which reminds me of a Caribbean trip where the hubby fell ill and the island physician wrote him an Rx for Pepto-Bismol. But that's for another time.

Hiking HSA Penalty
This provision would, beginning in 2011, increase the additional tax for nonqualified HSA withdrawals from 10 percent to 20 percent.

What's next? A fight on the Senate floor. Senate leadership (and the White House) must take the Finance Committee bill and tweak it so it gets the 60 votes necessary to avoid a filibuster.

That won't be easy, since some Senate Democrats, both on the liberal and conservative edges of the party, have reservations about the bill. The Wall Street Journal looks at six key figures to watch as the health care debate moves to this next stage.

Related posts:

• Finance health plan would cut deficit
• Cost of not reforming health care
• Tax reform's lesson for health care
• FSAs: An Rx for Healthcare Costs (Worth/austinwoman)