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Obama endorses new taxes, more drugmaker fees

February 22, 2010

President Barack Obama, seeking to break an impasse over health-care legislation, proposed a plan that includes the first Medicare tax on unearned income such as capital gains and higher fees on drugmakers, while scaling back a levy on high-end benefits.

The measure released Monday marks a reversal from months of leaving the legislation’s details largely up to congressional Democrats, who have failed to agree on a plan. Obama relied mostly on a Senate bill passed in December, with elements of a House version passed in November.

The plan to cover 31 million uninsured Americans presents a challenge to Republicans before a Feb. 25 meeting at Blair House, across the street from the White House. Obama invited leaders from both parties and called on Republicans, who have almost universally opposed the Democratic plans, to offer their own “comprehensive bill” to extend coverage and reduce costs.

“We view this as the opening bid for the health meeting,” said Dan Pfeiffer, the White House communications director, on a conference call with reporters. “The president is coming to the meeting with an open mind. He hopes that the Republicans do, too. Our hope is to find some areas of agreement.”

Republicans have criticized the Democratic legislation, saying it’s too expensive at about $1 trillion over 10 years, that it unfairly forces people to obtain insurance, and will lead to government domination of health care. The White House says the program will be fully paid for with taxes and savings.

House Republican leader John Boehner said Monday that Obama was undermining the Feb. 25 meeting with his plan.

“The president has crippled the credibility of this week’s summit by proposing the same massive government takeover of health care based on a partisan bill the American people have already rejected,” Boehner, of Ohio, said in a statement.

To sidestep Republican opposition, the Democrats may use a procedure called reconciliation, which would require just 51 Senate votes to pass as long as the bill dealt only with revenue and spending issues. Pfeiffer said the possibility of using reconciliation played a part in the design of the White House plan and gives Democrats “flexibility.”

In the plan, Obama is advocating new taxes for Medicare, the government health program for the elderly. He proposed a 2.9 percent assessment on income from interest, dividends, annuities, royalties and rents for individuals earning more than $200,000 or families making more than $250,000.

The proposed tax would also apply to capital gains, an administration official confirmed. That would push the rate to 22.9 percent in 2011, up from 15 percent now and 20 percent scheduled to take effect next year. Obama also embraced the Senate proposal for an increase in the Medicare payroll tax on the highest earners.

“This is a potential pot sitting out there, a source of tax revenue that they haven’t tapped into,” said Roberton Williams, a senior fellow at the Tax Policy Center in Washington. “It changes the nature of financing for Medicare.”

The president endorsed yet another change in the so-called Cadillac tax on high-end employer-provided plans, which has been one of the most contentious parts of the legislation. While some economists say the levy would discourage wasteful spending, labor unions say it would hurt too many workers, and they successfully negotiated to scale it back in January.

Under the Obama measure, the 40-percent excise tax would apply to plans with premium costs in excess of $10,200 for singles and $27,500 for families, with adjustments for high-risk occupations and companies with higher costs because of the age or gender of their workers. That’s up from a deal of $8,900 and $24,000 that had been worked out with labor leaders earlier.

Dental and vision benefits would no longer be counted, and the effective date would be moved to 2018. The president said there would also be an automatic adjustment to the thresholds for premiums if health-care costs rise unexpectedly quickly.

Under the plan, the pharmaceutical industry, led by New York-based Pfizer Inc., would shoulder $10 billion more in fees over 10 years starting in 2011. The extra money would be used to help close the so-called doughnut hole in coverage for Medicare prescription-drug patients.

The proposal includes a provision that would outlaw a practice in which brand-name drugmakers pay companies to keep competing generics off the market. There were 19 so-called pay-to-delay deals last year, usually made as part of a settlement in patent litigation, according to the Federal Trade Commission.

Obama made smaller changes to plans to raise money from medical device makers such as Boston Scientific Corp. of Natick, Mass., and health insurers such as Indianapolis-based WellPoint Inc. He delayed until 2014 the implementation of $67 billion in fees on the insurance industry over 10 years and changed the $20 billion assessed on device makers to an excise tax instead of a fee, with a start date of 2013.

He endorsed a new panel that could curb insurance-rate increases it deems unreasonable and included restrictions already in the House and Senate bills. For instance, insurers wouldn’t be able to refuse new clients because they have preexisting medical conditions.

The trade group America’s Health Insurance Plans called on the White House to include “system-wide reforms to control the rapid increase in the underlying cost of medical care.”

“Creating a new duplicative layer of federal premium regulation on top of what states are already doing will only add regulatory complexity and increase health-care costs,” said Robert Zirkelbach, a spokesman for the Washington, D.C., group.

Obama also eliminated a Senate provision that gave special aid to Nebraska to help the state cover additional costs for Medicaid, the government health program for the poor. Instead, he said he would provide greater assistance to all the states.

The president said he was proposing changes that would give more aid to Americans to help them buy insurance. Under his plan, families making between $66,000 and $88,000 a year would pay no more than 9.5 percent of their income in premiums.

He came down on the side of the Senate on the issue of how new online purchasing exchanges should be set up, opting for a state-by-state system rather than a national version. House leaders argue that state exchanges wouldn’t be as effective.

He also sided with the Senate in avoiding a mandate on employers to offer insurance while including a penalty for large companies whose employees end up buying taxpayer-funded insurance. Under his plan, companies with more than 50 workers who don’t offer coverage would be subject to a fee of $2,000 per worker, minus the first 30 employees.

House Speaker Nancy Pelosi said the proposal contained “positive elements” from both the House and Senate bills. “I look forward to reviewing it with House members and then joining the president and the Republican leadership at the Blair House meeting on Thursday,” she said in a statement.

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