July 17 (Bloomberg) -- The House Ways and Means Committee
approved the biggest overhaul of the U.S. health-care system in
four decades, including a surtax of as much as 5.4 percent on
the nation’s wealthiest households to help pay for it.

The tax panel voted 23-18 in favor of its part of the
historic legislation, with three Democrats joining all the
Republicans in voting against the measure. It’s the first of
three committees to finish consideration of the health-care
overhaul as the House works to pass legislation before an August
deadline set by President Barack Obama.

“We’re very, very proud of what we’ve done,” Ways and
Means Chairman Charles Rangel of New York said after the panel
debated the measure for 15 hours. “We’re one-third of this
tripod. I think we carried our weight.” The House Education and
Labor and Energy and Commerce panels aim to finish their
portions of the measure by today or next week, aides said.

Democrats touted the measure as a landmark initiative to
expand access to affordable health care to 46 million people who
lack insurance while driving down costs. Republicans said it
would increase costs and force tens of millions Americans into
government-run care they said would be substandard.

“This is not some think-tank experiment,” Michigan
Representative David Camp, the panel’s top Republican, said of
the biggest expansion of health care since the establishment of
Medicare and Medicaid in 1965. “These are people’s lives,
people’s jobs we’re talking about.”

Deadline Looms

The House and Senate must each pass their own versions of
the bill, then reconcile them before sending the legislation to
Obama’s desk for his signature. The Senate health committee
approved a plan this week, although the Finance Committee is
struggling to reach a bipartisan compromise.

There was little bipartisanship on the Ways and Means
panel. Democrats rejected a slew of Republican amendments that
would have stripped a government-run plan from the legislation,
prohibited rationing of health care and forced members of
Congress into the public plan. While Democrats control the
committee, three party members -- Ron Kind of Wisconsin, Earl
Pomeroy of North Dakota and John Tanner of Tennessee -- voted
with the Republicans against the measure.

“The other side is trying to make people afraid,” said
Washington Representative Jim McDermott, a senior Democrat on
the panel. “To make it sound like we are compelling people to
go in one direction is an unfair mischaracterization,” added
fellow Democrat Xavier Becerra of California.

Insurance Mandate

The legislation would require companies to provide health
insurance or pay an 8 percent payroll tax to help pay for their
coverage by the government plan. The House is also proposing a
mandate on Americans above a certain income level: People would
be penalized as much as 2.5 percent of their income for failure
to buy health insurance.

The plan would cost about $1 trillion over 10 years and
reduce the number of uninsured by roughly 37 million Americans,
according to a preliminary analysis by the Congressional Budget
Office. The nonpartisan agency said that by 2019 some 17 million
people, about half of them illegal immigrants, would lack
coverage.

The question of how to pay for the overhaul is the biggest
challenge, and the idea of imposing surtaxes on the wealthiest
households is drawing fire from Republicans and Democrats.
Senator Ben Nelson of Nebraska has expressed skepticism, as have
House Democrats in the Blue Dog Coalition, a group that
advocates spending restraint.

Graduated Surtaxes

House Ways and Means Committee members approved a series of
graduated surtaxes that kick in on incomes above $280,000.

The surtax would also place a 1.5 percent additional levy
on couples with incomes between $500,000 and $1 million, and a 1
percent surtax on incomes over $350,000. The measure is intended
to raise $544 billion over 10 years and calls for the taxes to
increase if the bill doesn’t hit a target for cost savings.
Capital gains as well as earned income would be subject to the
surtax.

The legislation also contains several tax increases on
corporations, and a new provision to prohibit reimbursements for
over-the-counter drug purchases using pretax health-spending
plans such as employer-administered Flexible Spending Accounts
and individually owned health savings accounts.

Health Exchange

The bill creates a new national health exchange that would
allow small-business employers and individuals to comparison
shop among insurers. The exchange would coordinate with state
insurance departments to enforce regulations and administer the
sliding-scale credits the bill would create to help low- and
middle-income individuals and families buy coverage.

The bill would prohibit insurance companies from
establishing any lifetime or annual ceiling on benefits and
limit companies from charging higher rates due to health status,
gender or other reasons. Premiums would only be allowed to vary
based on age, geography and family size.

Medicare would be overhauled to reward the efficiency of
health-care services, not the volume, as is the case now. The
so-called “doughnut hole,” or coverage gap in the Medicare
program that provides drugs to seniors would be eliminated.

To contact the reporter on this story:
Ryan J. Donmoyer in Washington at
rdonmoyer@bloomberg.net