http://online.wsj.com/article/SB125761510544336033.html

WASHINGTON -- House health-care-overhaul legislation would impose hefty penalties on employers who didn't offer their workers health insurance, and would tax wealthy households to help pay for covering the uninsured.

Those are two of the major tax changes businesses and individuals would see under the House bill, and are among the most contentious issues Democrats will face as they try to craft a final bill in conference negotiations with the Senate.

A House vote on the health-care bill could come as early as Saturday.

Business groups are looking toward conference negotiations to try to eliminate or water down the House employer penalties.

Firms that didn't offer health insurance up to minimum standards spelled out in the House bill would face penalties up to 8% of payroll. The smallest businesses, up to $500,000 in payroll, would be exempt from the penalties.

Companies that have high proportions of low-paid and part-time workers are likely to be hit hardest by the penalties.

"If you currently cover 20% of workers, and 80% are part-timers you don't cover, you will have a very different situation than an IBM, that covers everybody," said John Sheils, a health-care analyst at the Lewin Group, a consulting firm owned by insurer UnitedHealth Group Inc.

Some private studies have found that many small businesses now insuring their workers would see their health-care costs go down under the House bill, particularly as a result of efficiencies in the small group market.

Individuals with income over $500,000 and married couples making in excess of $1 million would face a 5.4% surtax on income above those amounts. After taking into account the expiration of the Bush tax cuts, those people would face a marginal tax rate of 45%.

The tax would affect 0.3% of U.S. taxpayers, and 1.2% of small businesses. About one-third of the $460.5 billion raised by the surtax over 10 years would come from business income, the Joint Committee on Taxation said.

House leaders scaled the surtax back from an earlier proposal at the behest of a group of rank-and-file Democrats worried about its impact on small businesses.

Some of those House Democrats are holding out hope for further changes in conference. For instance, the $500,000 and $1 million thresholds aren't indexed for inflation, meaning they will affect more and more Americans over time, said Rep. Michael McMahon (D., N.Y.)

The choice between the House's surtax on the wealthy and a Senate funding mechanism -- an excise tax on expensive or "Cadillac" insurance plans -- promises to be one of the toughest issues House and Senate negotiators will have to solve.

"The first thing they may try is, what if we take a little bit of each bill," said Clint Stretch, a principal in the national office of Deloitte Tax LLP. "But it's going to be hard to sell the House on the Cadillac plan tax," which is opposed by unions.

Beyond the surtax on the wealthy, the House bill would impose a new $2,500 annual cap on contributions to flexible spending accounts, and change the rules so pretax dollars in those accounts cannot be used to purchase over-the-counter drugs.

On the business side, the bill would impose a new 2.5% tax on the sale of medical devices, paid by medical device makers like Medtronic Inc. and Boston Scientific Corp. and wholesalers.

It also limits certain tax deductions foreign multinationals are now eligible for through tax treaties. And it shuts down a tax credit that could have yielded as much as $24 billion to paper companies that produce biofuels using "black liquor," a byproduct of the pulping process.

http://www.google.com/hostednews/ap/article/ALeqM5jfkrVhVuGBmgA7iXHJ3ef-pw_NBQD9BMOK780

WASHINGTON — Those tax-free spending accounts that you and your co-workers use to help pay for dental work, insurance copayments or over-the-counter drugs face a hit under the health overhaul bills in Congress — unless a coalition that includes a powerful union, insurers and others can stop it.
Bills in the House and Senate would cap at $2,500 an employee's allowable annual contribution to a health care flexible spending account.
There is no federal cap on contributions now, though companies that offer the accounts — more than 80 percent of companies employing 500 or more workers do — typically impose their own limits, usually around $5,000.
Workers can use the accounts to save pretax income, which then can be used to reimburse a range of medical expenses, including dental and vision costs, prescription and over-the-counter medications and copays and deductibles — again without being taxed.
Capping contributions to the accounts would raise more than $13 billion over 10 years to help pay for Democratic health care legislation because it would limit the amount of employees' income that is exempt from taxation.
But an unlikely bedfellows coalition that is characteristic of this health care debate — where common interests can unite groups that might typically be at odds — is mobilizing to try to stop the change.
A limited print ad campaign declaring "Flexible spending accounts work!" appeared this past week in Capitol Hill publications. It's paid for by a group called Save Flexible Spending Plans that is backed by insurers, companies that administer consumer spending accounts and other businesses with a financial stake in the outcome. The United Food and Commercial Workers International Union endorsed the campaign and its logo appears on the ads.
"Our concern is that a cap of $2,500 is a definite tax on the middle class, particularly those with chronic illnesses," said Jody Dietel, executive director of Save Flexible Spending Plans and chief compliance officer at WageWorks, Inc. of San Mateo, Calif.
Advocates say the typical flexible spending account user makes $55,000 annually.
Although some lawmakers are sympathetic, the opposition appears unlikely to succeed in getting the flexible spending account cap out of Congress' health care bill. Unlike the initial Senate proposal, though, House members want to allow the cap to be adjusted so it would rise along with inflation. That would be a welcome improvement for advocates.
Aides to the Senate Finance Committee, which proposed the cap, defend it by saying it would help curb overuse of medical care. Money deposited in the tax-free accounts must be used within 2 1/2 months of the end of the plan year. That may create an incentive for people to spend all the money even if they don't have pressing needs.
In addition, committee spokeswoman Erin Shields said the impact of the cap would be limited. Data compiled by the consulting firm Mercer shows that the average flexible spending arrangement contribution in 2008 was $1,385, much lower than the one contemplated by Congress.
Mercer said that 27 percent of all employers offered health care spending accounts in 2008 — small businesses are much less likely to do so than large ones — and that 37 percent of eligible workers signed up for the accounts.
"The provision, in addition to helping reduce the overutilization of care, also affects only a limited number of people," Shields said.
Dietel said those averages are no comfort to people using the accounts to cover extreme costs of a chronic condition — say a single dad whose child has a peanut allergy requiring special treatment.
"The reality is that an average is an average," Dietel said. "It's the only tool out there that allows an individual to tailor coverage to their own individual need."

FWers, if you were ever contemplating LASIK or any other type of surgery, get your max in your Flex Spending Account this year. I have no idea why they would do away with this, but take advantage of it while it lasts.

http://docs.house.gov/rules/health/111_ahcaa.pdf

SEC. 532. LIMITATION ON HEALTH FLEXIBLE SPENDING AR9
RANGEMENTS UNDER CAFETERIA PLANS.
10 (a) IN GENERAL.—Section 125 of the Internal Rev11
enue Code of 1986 is amended—
12 (1) by redesignating subsections (i) and (j) as
13 subsections (j) and (k), respectively, and
14 (2) by inserting after subsection (h) the fol15
lowing new subsection:
16 ‘‘(i) LIMITATION ON HEALTH FLEXIBLE SPENDING
17 ARRANGEMENTS.—
18 ‘‘(1) IN GENERAL.—For purposes of this sec19
tion, if a benefit is provided under a cafeteria plan
20 through employer contributions to a health flexible
21 spending arrangement, such benefit shall not be
22 treated as a qualified benefit unless the cafeteria
23 plan provides that an employee may not elect for
24 any taxable year to have salary reduction contribu25
tions in excess of $2,500 made to such arrangement.

SEC. 531. DISTRIBUTIONS FOR MEDICINE QUALIFIED ONLY
9 IF FOR PRESCRIBED DRUG OR INSULIN.
10 (a) HSAS.—Subparagraph (A) of section 223(d)(2)
11 of the Internal Revenue Code of 1986 is amended by add12
ing at the end the following: ‘‘Such term shall include an
13 amount paid for medicine or a drug only if such medicine
14 or drug is a prescribed drug or is insulin.’’.

There's some debate to be resolved whether this goes in for 2011 or 2013. Either way, it's best to be prepared.

This is not good.

Xnarg said:This is not good.

No, this is VERY good - the only way to fix the problem is to make sure
that everyone that is currently enjoys perks offered by their employers or their
swiftness while thinking "It would be nice if EvilCapitalist paid more in taxes to
provide freelance writers and artists with insurance so I could enjoy their art"
has a choice of paying more for medications themselves or subsidizing said writers.

Any change to the HSA related perks?

My FSA is a limited use FSA, only for dental and vision purpose. I put only a little bit money in it.

tripleB said:Of course FSA and HSAs are getting neutered. This legislation is designed to help the extremely poor only. Anyone middle class and up has to make sacrifices to help those in need. Why should middle class people continue getting tax deductions for over-the-counter medicine when poor people can't get basic health care?That is exactly the plan as put forth by those who will profit most from the plan.

Phew, almost switched my plan over to HDHP/HSA for this year's enrollment.

Krazen1211 said:nycll said:Any change to the HSA related perks?

My FSA is a limited use FSA, only for dental and vision purpose. I put only a little bit money in it.

I don't know if contact lens solution and such is counted there, but that goes away.

HSA penalty for nonqualified distributions is now 20%, up from 10%. The same drug restrictions (no OTC drugs, insulin and prescription only) that apply to FSAs apply to HSAs.Yes, I am pretty sure contact lens solution is eligible for both HSA and limited purpose FSA. But OTC drugs are only good for HSA, not limited purpose FSA.

I am currently use HSA as an IRA type of account. I am sure when I grow older eligible medical expenses will have no problem exceed the HSA balance. So the most important feature of HSA is the ability to compound the pretax dollar and accumulate claims but not withdraw the money through the years.

I really wouldn't worry about any immediate changes for the next year. Even if some version of the bill actually is enacted into law (it certainly won't be the current bill as the senate version is more than likely going to be quite different), the changes won't take place until at the minimum 2011 and more likely 2013. Very little of the bill would actually go into effect any time soon.