December 19, 2009 / 9:48 PM / 10 years ago

UPDATE 1-US Senate health bill alters company taxes, profits

* Reid plan phases in insurer taxes, caps profits

* Medical device taxes delayed to 2011

* No “Botax,” tanning taxes to raise $2.7 billion (Adds details from amendments, industry reaction, background)

By Susan Heavey

WASHINGTON, Dec 19 (Reuters) - Proposed changes to the U.S. Senate’s pending healthcare reform bill include measures targeting industry profits and taxes, and a move to ensure health insurers spend a certain amount on medical care, according to a document released on Saturday.

The changes, proposed as a group of amendments, must be approved by the Senate before they can be added to the massive legislation that lawmakers are struggling to finish before Christmas despite delaying tactics by Republicans and a severe snowstorm in the nation’s capital. Democrats appear to have pulled together the 60 votes needed to pass a final bill.

The taxes are aimed at helping pay for the healthcare overhaul aimed at expanding access to health insurance and controlling costs, President Barack Obama’s top domestic priority. [See ID:nN19253925]

Under the proposal by Senate Democratic leader Harry Reid, health insurance plans for large groups would have to spend at least 85 cents out of every dollar on medical costs. That means just 15 cents could go toward overhead and executive salaries, among other things. Small groups or individual plans would have to spend at least 80 cents on the dollar for care.

That proportion of spending, known as a “medical loss ratio,” has varied widely and is eyed closely by Wall Street due to its major impact on profits.

Consumer groups and other critics have long argued that insurers aim to trim medical spending and raise customer costs in order to boost profits and please shareholders, a charge the industry has denied, saying premium increases mirror rising healthcare costs overall.

Taxes on for-profit health insurance companies such as Aetna Inc AET.N, Humana Inc (HUM.N) and UnitedHealth Group Inc (UNH.N) also saw significant changes that may end up being positive for the industry.

The original Senate bill taxed the health insurance industry a fixed $6.7 billion a year. But under Saturday’s proposal, the industry would face just a $2 billion tax in 2011, with increases over time to $10 billion in 2017.

Reid also allowed health insurers to keep their current anti-trust exemptions, something House of Representatives Democrats did away with in their Nov. 7 version of the bill. Democratic Senator Patrick Leahy vowed to seek removal of the protection as work on the bill continues.

A spokesman for the Association for Health Insurance Plans said the lobby group was reviewing the changes.

Obama, in his weekly address on Saturday, said other tough insurance measures in the bill would help protect patients and hold insurance companies accountable.

TANNING TAX

Additionally, the bill’s revisions delayed a tax on medical device manufacturers until 2011. The total tax on the industry would be unchanged at nearly $20 billion over 10 years, according to a review by the nonpartisan congressional Joint Committee on Taxation.

Makers of medical devices want to delay the tax until 2013. Advanced Medical Technology Association spokeswoman Wanda Moebius said the lobby group would keep pressing for changes that would be “more appropriate to allow companies time to adjust their operations.”

Reid’s changes also removed a 5 percent tax on cosmetic surgery, wrinkle-filling injections and other similar procedures, replacing it with a 10 percent tax on indoor tanning salons estimated to raise $2.7 billion through 2019.

The “Botax” could have lowered demand for breast implants, wrinkle-fillers and other similar products made by companies such as Medicis Pharmaceutical Corp MRX.N, Johnson & Johnson (JNJ.N), and Botox-maker Allergan Inc (AGN.N).

Industry analysts had expressed concern that changes could also target companies that administer drug-benefit plans, such as Medco Health Solutions Inc MHS.N and Express Scripts Inc ESRX.O. But the amendment did not address the companies, also known as pharmacy benefit managers.

Additionally, a closely watched proposal that took aim at the use of doctors’ prescribing habits for marketing purposes was excluded. Such a measure had investors on edge since it would have been a major blow to IMS Health Inc RX.N, which is in the process of bought in a deal worth $4 billion.

There could be more changes before a final bill becomes law.

The first of two votes on the group of amendments is expected early on Monday before the Senate votes on the full legislation possibly as late as Christmas Eve. Additional revisions to the bill could still come as lawmakers work to combine the Senate’s measure with one passed by the House. (Reporting by Susan Heavey; Editing by Peter Cooney)

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