Expecting the new healthcare reform bill to cost approximately $1 trillion over the next decade, congressional Democrats are scrambling to find ways to fund the bill without raising the national deficit.

The Congressional Budget Office (CBO) reports that at this point in time, the bill would still add more than $230 billion to the deficit over the next decade, and senators hoping to pass reform before the August recess are trying to find new ways to find funding.

The current bill going through the House Ways and Means Committee proposes a surcharge for individuals with an annual adjusted gross income (AGI) of $280,000 or more, or families that make $350,000 or more, in order to fund the bill. That tax would rise on a sliding scale from 1 percent to 5.4 percent for individuals earning more than $800,000 and families earning more than $1 million. Altogether, this surcharge would raise an estimated $544 billion over the next 10 years, only half of what the bill is expected to cost.

The bill also stipulates that employers who don’t give their employees healthcare coverage would have to pay a fine equal to 8 percent of their workers’ wagers; small-business owners would be exempt from this rule.

But House Speaker Nancy Pelosi (D-CA) told Politico that she wants to “soften” the surcharge so that it only applies to individuals making $500,000 a year and families that make $1 million or more.

“So it’s a millionaire’s tax,” Pelosi explained. “When someone hears ‘2’ then think, ‘Oh, I could be there,’ because they don’t know the $280,000 is for one person. It sounds like you’re in the neighborhood. So I just want to remove all doubt. You hear ‘$500,000 a year,’ you think, ‘My God, that’s not me.’”

But Senator Chuck Grassley (R-IA), ranking member of the Senate Finance Committee, said that the millionaire’s tax is “definitely off the table.”

Grassley and Senate Finance Committee Charman Max Baucus (D-MT) are in the midst of developing a bipartisan proposal to push through the Senate, and are considering many options in terms of paying for the bill.

One option on the table is taxing employer-provided health benefits. Right now, health benefits (such as employer-paid premiums) received at work are tax-free. The Joint Committee on Taxation found that, last year, tax-free employer-provided health benefits reduced the federal tax revenue by $226 billion.

Baucus said that Senators are considering limiting how much money employees can receive for healthcare without being taxed. According to the Tax Policy Center, capping tax-excluded health benefits at the current average cost of health insurance – $5,370 for individuals and $13,226 for families – could raise $848 billion over the next decade.

Senators in the Finance Committee are also considering limiting or eliminating flexible spending arrangements, to which employees can contribute and receive a tax break; the money can be used for various health-related expensive that insurance doesn’t usually cover, including dependent care expenses. Currently there is no limit on how much money an employee can contribute, and some lawmakers propose limiting how much money can be contributed, or possibly getting rid of the FSA’s altogether.

So far, much of the funding for the bill has come from agreements the Senate and the White House have made with the medical industry. Currently, the medical industry has pledged to pick up approximately $150 billion of the cost of reform. But Pelosi told Politico she wants to “drain” more savings from the medical industry.

“I know they can [give up more], to the extent that the special interests are willing to cooperate… They could do much better… Frankly, I think all the money [to pay for the bill] could be drained from the system, if they were willing to do that.”

In the bill currently going through the House, Medicaid would be expanded to cover all non-elderly people with incomes at or below 133 percent of the poverty level and would also cover newborns for up to two months after birth if they were not already covered by insurance.

The Congressional Budget Office reports that 11 million more people would receive coverage via Medicaid under this plan at a cost of $438 billion over the next decade. This equals 40 percent of the total cost of the bill.

Because the federal and state governments share the price of Medicaid, many of the nation’s governors are worried that they will have to foot the bill. A bipartisan group of governors met recently in Biloxi, Mississippi to voice their views on the plan for Medicaid expansion, and most were concerned that the federal government would force the state governments to pay for the coverage without any financial assistance.

“I think the governors would all agree that what we don’t want from the federal government is unfunded mandates,” said Republican Governor Jim Douglas of Vermont, the National Governors Association’s incoming chairman. “We can’t have the Congress impose requirements that we are forced to absorb beyond our capacity to do so.”

Democrat Governor Phil Bredesen of Tennessee also said he was afraid Congress would impose “the mother of all unfunded mandates.”

“I’m personally very concerned about the cost issue, particularly the $1 trillion figures being batted around,” said Democrat Governor Bill Richardson of New Mexico.

One of the proposals being considered by the Finance Committee would have states issue bonds to cover the costs of expanding Medicaid. But governors in both parties are strongly opposed to the idea.

“There is strong bipartisan opposition to the idea of the states’ issuing bonds to pay for operational expenses,” said Republican Governor Haley Barbour of Mississippi, chairman of the Republican Governors Association. “One governor said it would be like taking out a mortgage to pay the grocery bill.”

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