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  • On March 23, President Obama signed the “Patient Protection and Affordable Care Act.” On March 30, he signed the companion “Health Care and Education Reconciliation Act of 2010.” Together, the two acts represent the biggest change in how we finance healthcare since Medicare was created in 1965. They also include some of the most significant tax changes in a generation. Healthcare reform has been an intensely political process. Not one single Republican voted for the law in either the House or the Senate. And polls show that Americans are overwhelmingly confused and concerned. They don’t know just what the new law does, and they don’t know how much it’s going to cost. That’s no surprise considering the actual texts of the bills runs over 2,500 pages. There’s probably not a single person on the planet who understands it all. I’m not here to debate the merits of the bill – it’s going to take a long time before historians can make that call. But I can help by explaining some of the most important changes – as well as how Washington plans to pay for it all.
  • Let’s start with the changes that go into effect this year. On the tax side, small businesses with up to 25 employees earning $40,000/year or less will get a tax credit for 35% of the cost of providing health benefits to their employees. And who can overlook a new 10% excise tax on indoor tanning services that use certain ultraviolet lights? That rule takes effect on July 1, just as outdoor tanning season goes into full swing. On the healthcare side, insurers companies can’t deny coverage to children for pre-existing conditions. They have to let children stay on their parents’ plans through age 26. They can’t set lifetime limits on plan coverage. Finally, Medicare Part D recipients who enter the so-called “donut hole” will get rebates and discounts on prescription drug coverage. For those of you who don’t know, the “donut hole” is a gap in prescription coverage where the government pays nothing and beneficiaries pay the full cost of drugs themselves.
  • Starting in 2011, employers will have to report the value of health benefits they provide employees on Form W2. that doesn’t mean benefits will be taxable – but employers will face penalties if they don’t provide that information. On the healthcare side, Medicare Part D recipients entering the “donut hole” qualify for discounts rather than rebates on prescription drugs.
  • 2013 is a big year for tax changes: Right now, medical and dental expenses are deductible if they exceed 7.5% of your “adjusted gross income,” or AGI. Unless, of course, you’re subject to Alternative Minimum Tax, in which case they have to exceed 10% of your AGI. Starting in 2013, that floor rises to 10% of AGI for everyone. Unless you or your spouse are 65 or older – in which case it stays at 7.5% of AGI. Unless, of course, you’re 65 and subject to AMT. Are we all clear here? If you participate in a healthcare flexible spending account at work, your contributions will be capped at $2,500/year, with no contributions for over-the-counter medications. If your earned income is above $200,000 – or $250,000 if you file jointly – you’ll pay an extra 0.8% Medicare tax on earned income above those amounts. Remember, the Obama administration has already proposed extra Social Security taxes in the 2-4% range on this income. If you’re in the top 39.6% marginal tax bracket that we can expect to see in 2011, these extra taxes could push your actual marginal rate well above 40%. Finally, you’ll pay a 3.8% “Unearned Income Medicare Contribution” on investment income if your AGI is above those same thresholds. “Investment income” is defined as interest, dividends, capital gains, rents, royalties, and annuities. This is a big change. It’s the first time investment income has ever been subject to Medicare tax. And lots of commentators fear it’s just the proverbial “tip of the camel’s nose” under the tent. So we’ll be paying lots of attention to this provision. On the healthcare side, starting in 2013 the new law limits the deduction for health insurance company executive compensation to $500,000, as opposed to the current $1 million. It doesn’t stop insurance companies from paying more than $500,000 – it just stops them from deducting anything over $500,000 on their own returns.
  • 2014 is another big year on the tax side. Employers with more than 50 employees will have to offer health benefits or pay a penalty of up to $2,000 per employee. Generally, employers will have to pick up at least 50% of premium costs. There’s also a 90-day limit on waiting periods before offering new employees coverage. Most individuals who aren’t covered through their employer will have to maintain “minimum essential coverage” or pay individual penalties. We’ll talk about that more in a bit. 2014 is also the year when the biggest healthcare changes go into effect. Specifically: Insurance companies can’t deny coverage to anyone for pre-existing conditions. Plans can’t set annual limits on coverage. (Remember, the ban on lifetime limits takes effect in 2010.) States can expand Medicaid eligibility to non-elderly, non-pregnant individuals with incomes up to 133% of the federal poverty level. For 2014-2016, the federal government will pick up 100% of those costs. Finally, the law requires states to establish insurance “exchanges” where individuals and small businesses can comparison-shop for coverage.
  • Finally, in 2018, the law imposes a 40% excise tax on “Cadillac plans” costing more than $10,200 per year for singles or $27,500 per year for families. The goal here is simply to rein in costs. But this provision doesn’t take effect until 2018 – which many experts think means it won’t ever take effect at all.
  • Let’s talk a little more about the one of the most controversial parts of the law – the so-called “individual mandate.” The law says that by 2014, all Americans have to maintain “minimum essential coverage.” If not, they face a penalty starting at $95 or 1% of income in 2014, and rising to $695 or 2.5% of income in 2016. After 2016, the $695 amount is indexed for inflation. Obviously, “universal coverage” is one of the new law’s primary goals. But there’s another reason to make sure everyone plays the insurance game. Right now, plenty of healthy people who can afford coverage choose not to buy it. They’re comfortable assuming the risk of not having coverage. But their decision not to buy makes coverage more expensive for the rest of us, because we can’t share costs with the ones who choose not to buy. That’s a pretty big step. The government has never required us to buy commercial products or services before. If you drive a car, most states mandate you buy car insurance – but nobody says you have to buy a car. Of course, there are plenty of exceptions to the rule. If your taxable income is under the federal poverty line, or the cost of coverage is more than 8% of your household income, you don’t have to pay. And if your taxable income is less than four times the federal poverty limit, you’ll get tax credits to help pay for coverage. But here’s the weirdest part of the new law. There’s no way for the government to enforce those penalties.
  • But here’s the weirdest part of the new law. There’s no way for the government to enforce those penalties . In fact, here’s what the congressional Joint Committee on Taxation had to say in their explanation of the bill: (Read explanation in the most incredulous tone you can muster) That means no interest. No liens. No levies. No jail time. It will be interesting to see how many Americans actually pay if there’s no real consequence for not doing it.
  • Legislation this complex and far-reaching is bound to attract opposition. And in this case, the opposition isn’t folding, even though it’s now the law of the land. Many prominent Republicans have vowed to overturn the law. They don’t have the votes to do it now, and they aren’t likely to get 67 votes necessary to sustain a certain Presidential veto even if they do overturn it in the Senate. But most experts expect the Democrats to lose congressional seats in this year’s election, and if they lose enough, the Republicans can certainly make political hay. State governments have also stepped up to oppose the new law. Many states are afraid it pushes too many costs onto them, especially increased Medicaid costs. A group of 11 state attorneys general have argued that the new law violates states’ rights, and plan to join together to block enforcement. Politicians in 36 states have introduced and in two cases even passed legislation that would limit or oppose various provisions of the law. For example, Virginia has passed a law making it illegal for the federal government to require Americans to buy health insurance. You can scoff at laws like that – but they can tie up enforcement in red tape and court challenges. Opponents also object that the “individual mandate” is unconstitutional. The argument here is that while Congress can certainly regulate economic activity, there’s no authority to penalize in activity – specifically, not buying insurance. There’s no telling how these challenges will play out. Right now, the “smart money” says there aren’t five votes in the Supreme Court to repeal such a broadly political decision. But what if five justices decide the narrow margin gives them political cover for repeal? Lots of commentators doubted the Justices would stick their necks out to decide a presidential election. But that’s exactly what they did in 2000 with Bush vs. Gore .
  • So – where do we go from here? There’s no doubt that what we’ve seen is just a first step in an ongoing process. You can count on us to follow the challenges we just discussed, as well as update you as more details become available. I also want to remind you that there are already concepts and strategies in place to help you cut healthcare costs for yourself and your business. Medical expense reimbursement plans may let you write off family medical bills as business expenses, avoiding the floor on itemized dedictions. Health savings accounts also let you finance deductibles and out-of-pocket expenses with pre-tax dollars. So please, call us with your questions. If we can’t answer you right away, we’ll find an answer for you. And don’t panic over changes like the individual mandate or tax on “Cadillac plans.” We’ve got lots of time to see how healthcare reform really shakes out.
  • So – where do we go from here? There’s no doubt that what we’ve seen is just a first step in an ongoing process. You can count on us to follow the challenges we just discussed, as well as update you as more details become available. I also want to remind you that there are already concepts and strategies in place to help you cut healthcare costs for yourself and your business. Medical expense reimbursement plans may let you write off family medical bills as business expenses, avoiding the floor on itemized dedictions. Health savings accounts also let you finance deductibles and out-of-pocket expenses with pre-tax dollars. So please, call us with your questions. If we can’t answer you right away, we’ll find an answer for you. And don’t panic over changes like the individual mandate or tax on “Cadillac plans.” We’ve got lots of time to see how healthcare reform really shakes out.

Health care mini presentation powerpoint Health care mini presentation powerpoint Presentation Transcript

  • Patient Protection and Affordable Care Act: Overview and FAQs Presented by: Jaswant S Gill, CPA 281-880-8500 [email_address] www.jsgcpas.com
  • 2010 Changes Tax Provisions Healthcare Provisions Certain small businesses with up to 25 employees get credit of up to 35% of the cost of providing employee health benefits 10% excise tax on indoor tanning services using certain UV lights Insurance companies cannot deny children coverage for pre-existing conditions   Children can remain on parents’ plan until age 26   Plans can no longer set lifetime limits on coverage Medicare Part D recipients entering “donut hole” get $250 rebate
  • 2011 Changes Tax Provisions Healthcare Provisions Employers must report value of health benefits on Form W2.   Penalty tax for Health Savings Account/Medical Savings Account distributions not used for health care expenses doubles from 10% to 20%. Medicare Part D recipients entering “donut hole” get 50% discount on certain prescriptions
  • 2013 Changes Tax Provisions Healthcare Provisions 7.5% floor for deducting medical and dental expenses climbs to 10% (for taxpayers age 65 or older, floor stays at 7.5% until 2016).   Healthcare flexible spending account contributions capped at $2,500/ year.   Hike Medicare tax to 3.8% of earned income above $200,000 (individuals) or $250,000 (joint filers)   Impose Medicare tax of 3.8% on “investment income” for filers with AGI above $200,000 (individuals) or $250,000 (joint filers) Limit deduction for health insurer’s executive compensation to $500,000
  • 2014 Changes Tax Provisions Healthcare Provisions Businesses with >50 employees must offer health coverage or pay penalty of $2,000/employee   Most individuals must maintain “minimum essential coverage” or face penalties Insurance companies cannot deny adults coverage for pre-existing conditions   Plans can no longer set annual limits on coverage   Medicaid expands to cover all Americans with income up to 133% of poverty line   State-run insurance “exchanges” begin offering coverage to individuals and small businesses
  • 2018 Changes Tax Provisions Healthcare Provisions Impose 40% excise tax on “Cadillac plans” costing above $10,200 (singles) or $27,500 (families)
  • “ Individual Mandate” Year Penalty 2014 $95 or 1.0% of income 2015 $325 or 2.0% of income 2016+ $695 or 2.5% of income
  • “ The penalty is assessed through the Code and accounted for as an additional amount of Federal tax owed. However, it is not subject to the enforcement provisions of subtitle F of the Code. The use of liens and seizures otherwise authorized for collection of taxes does not apply to the collection of this penalty . Non-compliance with the personal responsibility requirement to have health coverage is not subject to criminal or civil penalties under the Code and interest does not accrue for failure to pay such assessments in a timely manner.” Joint Committee on Taxation
  • Continuing Challenges
    • Republican repeal
    • State challenges
    • State “nullification”
    • Constitutional objections
  • Where Do We Go From Here?
    • Track challenges
    • Medical expense reimbursement plans
    • Health savings accounts
    • Circular 230 Notification
    • In accordance with the provisions of US Treasury Circular 230 we advise you that this communication and any attachments to this message is not intended or written to be used, and cannot be used for the purpose of avoiding tax penalties, under the IRS code, or promoting, marketing or recommending to another party any tax related matters addressed in this e-mail message or attachments.
    • www.jsgcpas.com
    • [email_address]
    • 281-880-8500