House Democrats unveiled their health care reform package after assembling the various components passed this summer by three separate committees.

George Miller

The House bill includes a 5.4 percent surtax on individual taxpayers earning more than $500,000 per year and couples earning over $1 million a year. The provision is not in the Senate version of the bill, however.

The 10-year, $894 billion bill is aimed at expanding insurance coverage to 96 percent of the U.S. population. The bill would limit the ability of insurers to deny coverage based on pre-existing conditions, and it would set up a health insurance exchange starting in 2013.

The exchange would allow individuals and small employers to comparison-shop among private and public insurers, including new health insurance co-ops. In addition, the House legislation includes a public health insurance option and it ends the antitrust exemption for health insurers.

All individuals would be required to get coverage, either through their employer or through the exchange, or pay a penalty of 2.5 percent of income, subject to a hardship exemption. The federal government would provide affordability credits on a sliding scale to low- and middle-income families.

Employers would continue offering their traditional coverage to workers, or be subject to penalties of 5 percent of payroll if they choose not to offer coverage.

House Democratic leaders hailed the bill. “We are closer than ever to guaranteeing every American access to quality, affordable health insurance and giving middle-class families and businesses relief from crushing costs, while reducing our deficit,” said House Education and Labor Committee Chairman George Miller, D-Calif., in a statement.

However, the bill is unlikely to win support from House Republicans, who vehemently oppose the Democrats’ plan. House Minority Leader John Boehner, R-Ohio, denounced it as “a monstrosity” and said the bill would raise the cost of health care for most American families.

The bill would offset the nearly $900 billion costs of health reform in part by preventing foreign multinational corporations incorporated in tax haven countries from avoiding tax on income earned in the United States by routing their income through structures in which a U.S. subsidiary makes a deductible payment to a country with which the U.S. has a tax treaty before ultimately sending those earnings to a tax haven.

It would also codify into law the economic substance doctrine and tax penalties on understatements of income. The economic substance doctrine is a judicial doctrine that has been used by the courts to deny tax benefits when the transaction generating these tax benefits lacks economic substance.

The bill would also delay until 2020 the implementation of a liberalized rule that Congress passed in 2004 for allocating interest expense between U.S. sources and foreign sources for purposes of determining a taxpayer’s foreign tax credit limitation.

In addition, the bill would limit salary reduction contributions to health care flexible spending accounts under cafeteria plans to $2,500 (indexed for inflation). It would also increase the 10 percent penalty on non-qualified distributions from health savings accounts from 10 percent to 20 percent.