Last night, the U.S. House of Representatives took a historic first step in passing President Obama’s health care reform initiative. On a straight party vote of 219-212, the House passed the Senate Bill, the Patient Protection and Affordable Care Act (the Act), and then a short time later passed the companion reconciliation bill to make certain changes in the Act. President Obama is expected to sign the Act tomorrow. As a reminder, the Senate Bill includes a health care exchange and co-op plan and expands Medicaid. It also includes a prohibition on lifetime and annual limits for coverage and limits pre-existing condition exclusions. Premium subsidies are available to individuals based on the federal poverty level and individuals are required to have coverage. Individuals who do not have coverage will pay a tax penalty, capped based on an average premium level. Most larger employers will be required to provide health care coverage to their full-time employees or pay an annual fee. One controversial provision of the Act is that plans providing generous benefits, so called “Cadillac plans,” are subject to an excise tax equal to forty-percent of the value of the coverage above a certain allowable threshold.

As a reminder, passage of President Obama’s final health care reform package involves a two step process: (1) last night’s approval by the House of the Senate Bill that was passed on December 24, 2009 and the companion reconciliation bill, and (2) passage by the Senate of the reconciliation bill. Under the controversial reconciliation process, only a simple majority is required to pass the bill.

The Congressional Budget Office (CBO) estimates that the cost of the health care reform package is $940 billion dollars. The health care reform bill is expected to extend coverage to an additional 32 million Americans over the next 10 years by expanding Medicaid eligibility and creating insurance exchanges and federal subsidies for lower-income families to assist in paying for insurance coverage. All Americans will be required to obtain insurance or pay an indexed annual penalty and employers will face penalties for not offering affordable coverage. Over time, insurers will be required to eliminate the denial of coverage to individuals with preexisting conditions and lifetime benefit limits. In addition, adult children would be able to remain on their parents policy up to age 26. The bill will also delay, until 2018, the 40% tax on high-cost plans.

To pay for the costs of these changes, the bill will impose a Medicare tax on investment income and a Medicare payroll tax increase for high-income individuals. Although the House fight is over, now the battle moves on to the Senate. In the Senate, a heated battle is expected with assaults on the budget reconciliation process, including parliamentary and procedural challenges. It is not known at this time how many of the provisions discussed above will fall due to procedural challenges.

Democratic leadership has stated that the reconciliation package could hit the Senate floor as early as tomorrow. We will continue to provide updates on this historic health care reform process as the reconciliation process works it way through the Senate. Once the final health care reform process is complete, we will provide more in-depth information to our clients and interested parties.

For more information on how health care reform may affect your organization, please contact your Executive Compensation and Employee Benefits counsel at Smith, Gambrell & Russell, LLP.