Lots for tax wonks to chew over in Senate Finance Committee Chairman Max Baucus’ health bill. The measure, which has yet to garner any Republican support, is already being called an opening gambit and is likely to be revised as it heads to committee markup next week. Still, it is an indication of how intertwined tax and health policy have become in recent years. Here are some of the key provisions:

Premium Subsidy: The proposal would require everyone to have insurance, but recognizes that many low- and moderate-income people will need subsidies to afford the premiums. The proposal’s mechanism for providing that assistance is a Health Care Affordability Tax Credit. It would work like this: People who buy insurance through a state exchange would report their modified adjusted gross income for the prior tax year. If they are eligible for the credit—which is based on an income-related sliding scale—they’d pay their premium minus the credit to the insurance company and Treasury would pay the difference directly to the insurer.   

Two quick thoughts on this: I can’t understand why this was designed as a tax credit rather than a straightforward voucher, and the design of this is immensely complicated like so many other low-income provisions of the tax code. I’ll have more to say on both of these problems tomorrow.

Small business tax credit: A separate credit of up to 35 percent would be available to small businesses that offer insurance to employees in 2011 and 2012, and of up to 50 percent for those small firms that buy insurance through the exchanges starting in 2013. But entrepeneuers shouldn't get too excited: The full benefit would be limited to firms with 10 or fewer workers who make an average of $20,000 or less, and the credit phases out completely for businesses with more than 25 employees or with average taxable wages of $40,000 or more.

Pre-tax health benefits: The proposal would create a new Simple Cafeteria Plan that is intended to make it easier for workers to purchase pre-tax benefits. It would make the plan available to the self-employed and also add private long-term care insurance as a cafeteria plan option. At the same time, however, the proposal would limit annual contributions to Health Flexible Savings Accounts to $2,000 starting in 2013. This year, the FSA cap is $3,000 for singles.

Taxing High-Cost Insurance Plans: Starting in 2013, Baucus would impose a 35 percent excise tax on insurance companies for plans valued at more than $8,000 for individuals and $21,000 for couples. While the tax would be imposed on insurers, it is likely that much of the levy would be passed on to insured workers.

The threshold would be raised for the 17 highest cost states for the first 3 years. However, as TaxVox predicted months ago, the cap would be tied to overall consumer prices not increases in medical costs, which rise much faster. Thus, while it would apply to very few policies at first, it would bite harder as the years went on. UPDATE: The Joint Committee on Taxation estimates this provision would raise almost $215 billion over just 7 years (2013-2019). By 2019, it would raise more than $50 billion annually  

Insurance and Provider Fees: Baucus would raise about $13 billion by imposing separate taxes–he calls them fees– on health insurance companies, large pharmaceutical and medical device manufacturers, and clinical labs. 

There are plenty of other tax provisions, but these are the big ones. Whatever else you think of health reform, it is increasingly clear that the IRS and Treasury Department will be taking a huge role in managing the nation’s medical care—whether we, or they, like it or not.