Health Care Reform Bill Has Self-Insurer Tax, New Prescription Drug Rules

By Staff Report

Jul. 16, 2009

Employers that self-insure their health care plans would face a new federal tax under health care reform legislation under consideration by several House committees.

Revenue from the tax, which also would apply to health insurers, would support a federal program created by the legislation to conduct research to compare the effectiveness of various medical treatments.

The legislation, H.R. 3200, which House Democratic leaders unveiled Tuesday, July 14, would leave it to the secretary of the Department of Health and Human Services to determine the size of the tax needed to raise $375 million a year.

If the secretary is unable to determine a so-called fair share per capita amount, the tax would be set at $2 per plan participant, starting in fiscal 2013. Future rates would be tied to the annual rise in the medical care component of the Consumer Price Index.

In addition, several other provisions in the House Democrats’ measure, which is designed to extend coverage to many currently uninsured individuals, would affect benefit plans.

For example, one last-minute addition to the bill would bar flexible spending accounts, health reimbursement arrangements and health savings accounts from being used to reimburse participants for over-the-counter drugs.

Under another provision, employers could extend health care coverage to employees’ same-sex or opposite sex partners without the cost of that coverage being added to employees’ taxable income.

A third late addition would bar employers that sponsor retiree health care plans from cutting benefits to current retirees unless comparable reductions were made for employees.

Self-insured employers are protesting the tax proposal as unfair for companies that provide insurance coverage for their employees.

The tax “would punish those employers that are doing the right thing by providing their employees health care coverage,” the Simpsonville, South Carolina-based Self-Insurance Institute of America Inc. said in a news release Wednesday, July 15.

SIIA also is worried about another provision that would authorize a study by a federal commissioner, which the legislation would create, to examine, among other things, the risk of self-funded plans not being able to pay claims.

The study also would include recommendations to Congress that would be deemed “appropriate” to ensure that the law does not establish incentives for small and medium-size employers to self-insure their health care plans.

“Self-insurance should be a model for reform (rather than) targeted for limitation,” SIIA Chief Operating Officer Michael Ferguson wrote in a letter to Rep. George Miller, D-California, chairman of the House Education and Labor Committee, which has jurisdiction over the issue.

Filed by Jerry Geisel of Business Insurance, a sister publication of Workforce Management. To comment, e-mail

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