An Overview of Bill H.R. 4872’s Provisions

The Health Care and Education Reconciliation Act of 2010, or H.R. 4872, amended the Patient Protection and Affordable Care Act (ACA). It was passed by Congress through budget reconciliation, a procedure allowing for expedited passage in the Senate with a simple majority, and was signed into law on March 30, 2010. The act’s scope was twofold, encompassing reforms in both the healthcare and federal student loan systems. Its primary changes involved adjusting health insurance subsidies, addressing prescription drug costs for seniors, and restructuring federal financing for higher education.

Healthcare Reforms and Modifications

The act modified the financial assistance available for purchasing health insurance. While H.R. 4872 made initial adjustments to premium tax credits, later laws like the American Rescue Plan Act and the Inflation Reduction Act significantly enhanced this aid through 2025. These changes eliminated the “subsidy cliff,” allowing more people to qualify for assistance by capping their premium contribution at 8.5% of household income. For those with the lowest incomes, this assistance can make benchmark marketplace plans available with a $0 premium.

The legislation addressed the Medicare Part D coverage gap, known as the “donut hole,” which exposed seniors to high out-of-pocket drug costs. H.R. 4872 began closing this gap with a $250 rebate in 2010 for affected beneficiaries, and it was fully closed by 2020. Beginning in 2025, the coverage gap structure is eliminated and replaced by a new design that includes a $2,000 annual cap on out-of-pocket prescription drug spending for Medicare beneficiaries.

H.R. 4872 also adjusted the penalties associated with the individual mandate established by the ACA. While the law fine-tuned the penalty amounts for its time, the financial penalty for failing to maintain health insurance coverage was later reduced to $0 at the federal level, effective in 2019. The legal requirement to have coverage still technically exists, but there is no longer a federal tax penalty for not complying.

For employers, the bill modified the shared responsibility payment. The law applied to employers with 50 or more full-time equivalent employees who did not offer affordable coverage. H.R. 4872 specified that the penalty calculation would exempt the first 30 employees, with the penalty amount per employee adjusted annually for inflation.

The act also delayed the implementation of an excise tax on high-cost, employer-sponsored health plans, known as the “Cadillac tax.” This tax was intended to curb healthcare cost growth by discouraging overly generous insurance plans. H.R. 4872 pushed its start date to 2018, but the tax was fully repealed in 2019 and never went into effect.

Student Loan and Education Financing Overhaul

The act overhauled the federal student loan system by ending the Federal Family Education Loan (FFEL) program. Under FFEL, private lenders issued federally guaranteed student loans, with the government paying subsidies to these lenders and assuming the risk of default. H.R. 4872 mandated that as of July 1, 2010, all new federal student loans would be originated directly by the U.S. Department of Education through the Direct Loan Program. This change generated federal savings that were used to fund other education initiatives.

The savings from ending the FFEL program were redirected to the Pell Grant program, which provides need-based financial aid to low-income undergraduate students. H.R. 4872 allocated billions to the program to ensure the stability of the maximum award amount. These funds also provided for future increases by linking the grant’s value to inflation.

The act also improved income-driven repayment plans, which base monthly payments on a borrower’s income. For new borrowers at the time, H.R. 4872 created a more generous Income-Based Repayment (IBR) plan, lowering payments to 10% of discretionary income and shortening the loan forgiveness timeline to 20 years. These changes paved the way for later plans like the Saving on a Valuable Education (SAVE) plan, which offers further reductions in payments and faster forgiveness for some borrowers.

Tax Provisions and Revenue Generation

To finance its spending provisions, H.R. 4872 introduced new taxes aimed at higher-income taxpayers. A primary measure was the Net Investment Income Tax (NIIT), which took effect in 2013. This provision imposes a 3.8% tax on either an individual’s net investment income or the amount by which their modified adjusted gross income (MAGI) exceeds certain thresholds, whichever is less. The income thresholds are $200,000 for single filers and $250,000 for married couples filing jointly.

Net investment income includes interest, dividends, capital gains, rental and royalty income, and non-qualified annuities. It does not include wages, self-employment income, or distributions from most retirement accounts like 401(k)s and traditional IRAs. For example, if a married couple has a MAGI of $300,000 and $75,000 in net investment income, the tax applies to $50,000, which is the lesser of their investment income ($75,000) or their income above the $250,000 threshold ($50,000).

The law also created the Additional Medicare Tax for higher earners. This provision added a 0.9% tax on wages and self-employment income above the same income thresholds as the NIIT. Unlike the standard Medicare tax, which is split between an employer and employee, the Additional Medicare Tax is paid only by the employee.

The two taxes apply to different types of income. The 0.9% Additional Medicare Tax applies to earned income like salaries, while the 3.8% NIIT applies to passive investment income. An individual can be subject to both if they have high levels of both earned and investment income. For instance, a single filer with $220,000 in wages and $50,000 in capital gains would pay the 0.9% tax on $20,000 of wages and the 3.8% tax on the full $50,000 of investment income.

The legislation included other revenue-generating measures. It codified the “economic substance doctrine,” a legal principle allowing the IRS to disallow tax benefits for transactions that lack a real economic purpose beyond generating a tax advantage. The act also imposed new annual fees on pharmaceutical manufacturers and health insurance providers to help offset reform costs, though these fees were later repealed.