Senate Dems Consider Health Care Fix That Could Hit Poor Consumers The Hardest

WASHINGTON -- Democrats on the Hill are growing increasingly convinced and, in some cases, concerned that in an effort to offset the cost of repealing a tax requirement in the president’s health care bill, the party will settle on a policy that jacks up insurance prices for low-income Americans.

The policy prescription, known as a “true-up,” and well-outlined by Talking Points Memo’s Brian Beutler, is the favored approach of House Republicans. Under the true-up, individuals who receive subsidies to help purchase insurance would be subject to heightened penalty from (or payback to) the IRS, starting in 2014, should they move up income brackets.

Up until last weekend, it seemed likely that Senate Democrats would balk at such an approach, wary that it would come off as penalizing the poor and discouraging those in need from taking subsidies to purchase insurance. But now, sources with knowledge of the conversations say, the party is leaning toward adopting the House GOP language in an effort to pay for the repeal of the law’s 1099 provision -- an unpopular requirement that requires small business owners to make excessive tax-reporting requirements.

“This is very real,” said one knowledgeable Senate source who was adamantly opposed to the proposal. “There are people talking to [leadership], letters from members, who are trying to make this not happen. But it is very, very real.”

A Senate Democratic aide confirmed that assessment.

Under current law, households that receive subsidies to purchase health care and work their way into higher income brackets would only be forced to pay the IRS back $600 or less. Those receiving federal tax credits based on their 2013 income level, the theory goes, should have to pay back some of that money if they get richer by 2014, since the lower the recipient's income, the more generous the subsidies.

The revised law, which the House passed and the Senate is now considering, would raise the penalties -- in some cases, by thousands of dollars. Households that move into an income bracket of 300 to 400 percent above the federal poverty line would have to pay up to $2,500 back to the IRS. For those that move into the range of 200 to 300 percent above poverty, that cap is $1,500. For those who move into the 100 to 200 percent range, it is $600. Those who move above the 400 percent range, which is the limit for qualifying for a subsidy in the first place, coule face a payback even higher than $2,500.

“It would cause a significant number of people, through no fault of their own, to have a significant liability at the end of each year,” said Ron Pollack, the founding executive director of Families USA, a national lobby for health care consumers. “And that is going to be both puzzling and troubling for people affected. The second problem is, as more and more people learn about these problems, fewer people will seek tax credit subsidies to help them afford premiums. So I think this would undermine the ability to provide affordable health coverage for many middle- and moderate-income people and families, and that would undermine a key goal of the Affordable Care Act.”

A spokesman for Families USA, following up on Pollack’s statement, noted that the Congressional Budget Office estimates that the fix could jeopardize coverage for approximately 250,000 people.

As to why the Democratic Party would lean on the backs of the poor and middle class to pay for the 1099 fix, Pollack could only speculate. The latter was so unpopular, he said, that lawmakers likely were eager to move quickly to fix it, even if it meant adopting House Republican language without much of a protest. That said, as of Monday morning, Senate Majority Leader Harry Reid’s office was cautioning reports that there were “concerns with the unintended consequences of the health care credit offset.” Further consultation with the leadership team was needed, Reid's office said.

UPDATE: Michelle Nawar, Director for Legislation at the Service Employees International Union, tells The Huffington Post that the labor group is working the Hill encouraging Senate Democrats to defeat the "true-up" pay for. The union, she adds, will be scoring the vote – as good an indication as any that there will be a political price to pay for those who support the House-passed provision.

“We are very disappointed that Senate leadership seems to want to go in this direction,” Nawar said. “We’re very upset that they appear willing to except this proposal that puts the burden on low-income families.”

As for the state of play in the Senate, a Democratic operative on the Hill relays that the party does appear “extremely close” to passing the true-up revision. The thinking, the operative relays is that leadership just wants to get the 1099 issue dealt with. The White House is opposed to the fix being discussed. But they don’t seem too eager to threaten a veto either.