How the healthcare Law Impacts You

CPAs & Advisors

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The Patient Protection and Affordable Care Act, also known as healthcare Reform, was passed in 2010. The law is complex and includes many provisions that will impact individual and business taxpayers. The following is a summary of the changes that will take place in the next two years.

In 2013, many changes will directly affect individuals:

Flexible Spending Contribution Cap – Section 125 flexible spending account contributions are limited to $2,500 per year (indexed for inflation).
Itemized Deduction Threshold – Unreimbursed medical expenses will have to exceed 10% of AGI, up from 7.5%, to be deductible (this is waived for those 65 or older for tax years 2013-2016).
Additional Medicare Tax – The employee portion of Medicare tax on wages over $200,000 ($250,000 MFJ) will increase by 0.9% – from 1.45% to 2.35%.
Additional Tax on Investment Income – For high income earners (over $200,000 or $250,000 MFJ), a new 3.8% Medicare surtax on the lesser of investment income, or the amount of investment income over the income threshold.

Elimination of Business Deduction for Certain Retiree Prescription Drug Costs Excise Tax on Medical Device Sales – 2.3%

In 2014, the following changes will take effect:

Individual Mandate Requirement that all U.S. citizens and legal residents have qualifying health coverage or face a penalty if they do not. By 2016, the penalty will be the greater of $695 per person or 2.5% of household income.
Automatic Enrollment of Employees in Large Employer Plans (those with more than 200 full-time employees)

Individual/Small Business “SHOP” Exchanges

  • The Act creates state-based exchanges (American Health Benefit Exchange and Small Business Health Options Program, or “SHOP”) where individuals and small businesses pool together to spread financial risk and buy healthcare insurance coverage for themselves and their employees.
  • Generally available to employers with up to 100 full-time employees until 2017 – after this, larger businesses may be allowed to participate.
  • Opportunity for small businesses to offer coverage, and possibly save money in the process by pooling together.

Small Business Tax Credit

  • Tax Credit equal to 50% of health insurance costs, assuming the following qualifications are met:
    • 10 or fewer full-time equivalent employees
    • Average annual wages of less than $25,000
    • Employer must pay 50% or more of the premium
    • Must purchase coverage through the state-based Exchange
  • Companies with between 11 and 25 employees with an average wage of less than $50,000 will be eligible for partial credits. Tax credit for small business expires after 2017.

Premium Assistance Tax Credit and Free Choice Vouchers

  • Tax Credit – available to certain low and middle income taxpayers (earning up to 400% of the federal poverty level) to facilitate the purchase of health insurance. Credit is refundable and can be advanced.
  • Free Choice Voucher – employers are required to provide any employee with income under 400% of FPL and whose share of premium exceeds 8% but is less than 9.8% of their income and who choose to enroll through the exchange with a voucher – equivalent to premium employee would have paid had they enrolled in employer plan.

Insurance Carrier Rate Setting Restrictions

  • Insurers no longer able to set rates or exclude coverage based on pre-existing conditions.
  • Can vary premiums only by geographic location, age and tobacco use.

Guarantee Issue Insurance Policies – Carriers may no longer deny coverage based on health factors. Essential Benefits Package – Creation of an essential health benefits package/minimum benefits that must be covered.

Deductible Limits – Health insurance plan deductibles are limited to $2,000 for individuals and $4,000 for families unless contributions are offered that offset deductible amounts (i.e., HRA contribution).

Annual Fee on Insurance Companies – Annual fees totaling $8 billion in the first year and $47.5 billion from 2014–2019 will be imposed on health insurance companies.

Wellness Programs – Allows employers to offer employees rewards or benefits for participating in a wellness program.

No annual limits on coverage in grandfathered individual and group plans. Allows states to apply for a waiver for up to five years of requirements relating to

  • Qualified health plans
  • Exchanges
  • Cost-sharing reductions
  • Tax credits
  • Individual and shared responsibility for employers, provided they create their own programs meeting specified standards

In 2015, the following changes will take effect:

Employer Mandate

  • Employers with more than 50 employees must offer coverage or be subject to a penalty.
  • If an employer does not provide coverage and one employee receives a tax credit through the exchange, the employer will pay a penalty for all full-time employees.
  • Fine for non-compliance is $2,000 per employee annually, but first 30 employees not counted (i.e., if employer has 51 employees and doesn’t provide coverage, the employer pays a fine for 21 employees).

Rev. 07/2013

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