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Health Care Reform
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Health Care Reform

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  • 1. HEB Business Solutions 375 South 300 West Salt Lake City, UT 84101 Ph:801-328-5000/Fax: 801-328-5009 www.hebsolutions.com
  • 2. Health Care Reform By JJ Jones, R.H.U. and Dave Lewis, C.P.A.
  • 3.  
  • 4.  
  • 5. About the Law
    • Health Care Reform:
      • The Patient Protection and Affordable Care Act (HR 3590), signed by President Obama on 03/23/2010. (2,409 Pages)
      • Healthcare and Education Reconciliation Act of 2010 (HR4782) , signed by President Obama on 03/30/2010 (55 Pages)
      • $940 Billion over 10 Years
      • Expand coverage to many more people (No Pre-Existing Conditions)
      • Eliminates Provisions to prevent selection
  • 6.
    • - Add Taxes, Penalties, and give tax credits
    • - Give Employees Vouchers to Opt out of Group Plans
    • - Establish Exchanges to Purchase Insurance
    • - Force Employers to Track Salary in Relation to Benefit Cost
    • - Change Flex Plan Maximums
    • - Limits Insurance Administrative Expenses
    • - Increases Funds to Community Health Centers
    • - Creates a Voluntary Long Term Care Insurance Program
    • - Change W-2 Reporting
  • 7.  
  • 8. Health Care Reform No Pre-Existing Conditions Where hospitals used to write these claims off and increased costs to those that pay their bill, they will now go to insurance companies and the cost will be passed along to consumers in the form of premium increases. The question is, will hospitals reduce rates? Can no longer deny coverage to children with pre-existing conditions under the age of 19. (All Plans) Effective on First Plan Year After September 23, 2010 Eliminating Pre-Existing Conditions Clauses What it means to you What is it? Effective WHAT
  • 9. Health Care Reform No Lifetime Maximums Will probably add approximately $.25 per member per month to your premiums. The greatest effect will be on self-insured stop loss premiums. Eliminates lifetime maximums in health plans. (All Plans) First Plan Year after September 23 rd , 2010 No Lifetime Maximums What it means to you What is it? Effective WHAT
  • 10. Health Care Reform No Annual Maximums Plans have been allowed to cap benefits such as dialysis to keep the plan viable. This will increase costs, but the severity of the impact is not known at this time as each group is specific to its own limits. Limits annual maximums to “Essential Health Benefits” only. In 2014 – Eliminates all annual limits. (All plans) First plan year after September 23, 2010 & 2014 No Annual Maximums What it means to you What is it? Effective WHAT
  • 11. Health Care Reform No More Co-Pays? What it means to you What is it? Effective WHAT Will add about 1% to the total premium for these “new” plans. “ New” plans must cover preventive services without a co-pay or deductible applying. First plan year after September 23 rd , 2010 First Dollar Preventive Services
  • 12. Health Care Reform Being Forced to Purchase? Currently being challenged by 41 states as unconstitutional. If it is deemed unconstitutional it will really mess things up. All citizens must have coverage or face a tax penalty consequences January 2014 Individual Mandated Coverage What it means to you What is it? Effective WHAT
  • 13. Health Care Reform Employer Penalty What it means to you What is it? Effective WHAT Do you pay the penalty and cancel coverage or keep plans in place with all of the administrative concerns. Keep in mind it could be much cheaper for an employer to pay a $2,000 penalty if they cover a lot of families. Employers must provide employee coverage or pay penalty of $2,000 per employee (not counting the first 30). January 2014 Employer Coverage Mandate
  • 14. Health Care Reform Waiting Periods What it means to you What is it? Effective WHAT This will bring employees onto plans sooner and may affect seasonal employment, but I do not expect this to be a big issue. Waiting periods are limited to no more than 90-days. 2014 Waiting Period Rules
  • 15. Health Care Reform Maximum Out-Of-Pockets What it means to you What is it? Effective WHAT This could be the biggest cost hit impact to new plans, as many employers have high deductible plans with high out-of-pocket maximums. Depending on the plan this could increase cost by 20% over a competitors plan. Out-of-pocket limits can not exceed HDHP limits of $5,000 individual and $10,000 family. 2014 Out-of-Pocket Limits Established
  • 16. Health Care Reform Emergency Room – Utah (BIG DEAL) What it means to you What is it? Effective WHAT New plans can go to all emergency room facilities at P.P.O. levels. Emergency care must be paid at PPO levels. Immediately effective for new plans Emergency Non-PPO Care
  • 17. Health Care Reform Better Shot at Appeals? What it means to you What is it? Effective WHAT Most plans in Utah and surrounding states have strong appeals processes in place so this should not impact plans significantly. An Internal/ External appeal process for claimants to appeal denied claims. Immediately effective for new plans Requires Established Appeals Process
  • 18. Health Care Reform P.C.P.’s What it means to you What is it? Effective WHAT Most plans in the West no longer require a PCP designation so this is not an issue. Applicants can designate an OB/GYN or Pediatrician as a Primary Care Physician. Immediately effective for new plans Primary Care Doctor Selection
  • 19. Health Care Reform Enrollment What it means to you What is it? Effective WHAT Little effect for most plans. Will put pressure on employees to “opt out” versus “opt in”. Large employers (over 200 employees) must auto-enroll employees in the least expensive plan option and provide adequate notice on how to opt out. Immediately, OR 2014 – the law is not specific Auto Enrollment Required
  • 20. Health Care Reform Dependent Definitions What it means to you What is it? Effective WHAT This is currently the Utah Law. No change for Utah Plans except married dependent children can continue through age 25. Child age limit is moved to age 26 (through age 25) for the purpose of health plan eligibility ( All Plans). First plan year after September 23 rd , 2010 Changes the Definition of a Child
  • 21. Health Care Reform Administration Cost/Insurers What it means to you What is it? Effective WHAT This one is interesting. Some states currently impose fees to insurers for risk pools, premium taxes and other surcharges which will make it more difficult for insurers to meet the administrative percentage rules. This could cause lay-offs and quality reductions at the insurers. Will require insurers for individual and small groups to spend 80% of premium dollars on medical services. Large groups is 85% and allows for rebates to premium payers if not done. January 2011 Making Premium Pay Provision
  • 22. Health Care Reform No Rescissions What it means to you What is it? Effective WHAT Generally will not affect insured plans as most in the West do not rescind coverage No rescissions of coverage First plan year after September 23 rd , 2010 Eliminates Rescission of Coverage
  • 23. Health Care Reform 125 Plan Changes What it means to you What is it? Effective WHAT This eliminates these reimbursements for those extra funds you have in your FSA at the end of the year. Employees will reduce FSA elections, employers lose small tax benefit. Removes over-the-counter medications that do not have a doctors prescription from being reimbursed under FSA, HRA, HSA’s. January 2011, but could be earlier if your plan runs mid- year 2010 into 2011 Flex Plan Changes
  • 24.  
  • 25.  
  • 26.  
  • 27.  
  • 28.  
  • 29. Health Care Reform Breaking news from Newsmax.com
    • Obama Threatens Veto of Obamacare as Cost Estimates Soar Above $1 Trillion
      • Reacting to the surprise announcement that congressional budget referees now predict healthcare reform could top $1 trillion, the Obama administration threatened Wednesday, May 12 th , to veto parts of its own healthcare bill.
  • 30. Health Care Reform Moving Forward
    • Individual meetings with our groups - Now through September 23, 2010 - Now through renewal date
    • Determine how this will affect each of you
    • Keep Employers in compliance with the law
    • Financially what makes the most common sense
    • Tax Implications / Tax Savings (Dave)
  • 31. Health Care Reform
    • Provisions for Individuals
      • Premium Assistance Credit
      • Excise tax on uninsured individuals
      • Medical care itemized deduction threshold
      • Additional hospital insurance tax of .9%
      • Additional Medicare tax on investment income of 3.8%
      • Various other provisions
  • 32. Health Care Reform
    • Premium Assistance Credit
      • Refundable tax credit for eligible taxpayers
      • Used to offset costs of state exchange premiums (not available for Employer plans)
      • Can be paid directly to insurer or credit can be taken on tax return for eligible taxpayers
      • Available for taxpayers with incomes between 100% and 400% of poverty level (two prior years considered – for 2010 the max amount for a family of 4 is $88,200)
      • Credit is determined based on premiums that exceed thresholds based on % of income and family size
      • Effective for years after 2013.
  • 33. Health Care Reform
    • Premium Assistance Credit (continued)
      • EXAMPLE: The premium assistance credit operates on a sliding scale that begins at 2% of income for taxpayers at 100 % of the FPL and at 9.5 % of income for those at 300-400% of the FPL. For instance, if the credit were in effect for 2010, the premium for the second lowest cost silver health plan for family coverage would be $11,500, and if a family of four had household income of $88,000 (approximately 400% of the current FPL), the credit would be $3,140 ($11,500 - $8,360 ($88,000 x .095)) since the taxpayer would be expected to pay 9.5% of income, or $8,360, for health insurance premiums. In contrast, if the family’s household income was $29,000 (approximately 133% of the current FPL), the credit would be $10,920 ($11,500 - $580 ($29,000 x .02)) because the taxpayer would be expected to pay only 2% of income, or $580, for health insurance premiums.
  • 34. Health Care Reform
    • Free-Choice Vouchers
      • Employers that offer coverage are required to provide “Free Choice Vouchers”
      • Applicable only to employees whose income is <400% of the poverty level.
      • Employees portion of insurance cost must be >8% of household income (but not more than 9.5%)
      • Employee must elect to get coverage through the state exchange
      • The voucher would generally be the amount the employer would have contributed to the plan
  • 35. Health Care Reform
    • Free-Choice Voucher (continued)
      • EXAMPLE: Employee (1 of 25) falls into the <400% poverty level. The total premium for the group insurance is $1,000 per month. The employer pays $500 of it. That leaves $500 for the employee to pay. The employee makes $6,000 per month. The employee portion is 8.3% of total income, and therefore, he qualifies to elect out of the employer group plan and elect state exchange coverage. The employer will provide a voucher for $500 per month to subsidize the employees outside insurance.
  • 36. Health Care Reform
    • Excise tax on uninsured individuals
      • US citizens and legal residents must maintain minimum coverage.
      • Penalty will be the greater of
        • 2.5% of the amount by which the taxpayer’s income for the year exceeds threshold amount of income required for filing or
        • $695 per uninsured adult in the household (half for those <18 yrs. of age)
      • The penalty will be phased in from 2014-2016
      • Liens, seizures, criminal penalties not authorized to enforce provision
      • Most criticized part of the bill and the basis for legal challenges in many states.
      • Applies to years after 2013. Fully effective in 2016.
  • 37. Health Care Reform
    • Excise tax on uninsured individuals (continued)
      • EXAMPLE: The Johnsons are married and file a joint return for 2014. They are applicable individuals who are not exempt from the penalty for failure to maintain minimum essential coverage. Their household income is $45,000, and their filing threshold is $23,900. They and their four dependents are all uninsured for the entire calendar year. One dependent is an adult, and the other three are under the age of 18 for the entire year. The Johnsons’ shared responsibility payment is calculated as follows:
        • They are jointly and severally liable for the penalty for themselves and their four uninsured dependents.
        • For purposes of the flat dollar penalty, the applicable dollar amount for 2014 is $95. This amount is halved for applicable individuals under the age of 18.
      • Thus, the Johnsons’ total penalty would be $427.50 ($95 for each of the three adults, and $47.50 for each of the three children). However, the flat dollar amount is limited to 300% of the applicable dollar amount, with no adjustment for individuals under 18. Thus, the Johnsons’ flat dollar penalty is $285 ($95 x 3).
        • The Johnsons’ household income exceeds their filing threshold by $21,100 ($45,000 - $23,900). Thus, their percentage of income penalty is $211 (1.0% of $21,100).
        • The Johnsons’ actual penalty is the lesser of (i) their penalty amount, which is $285 (the greater of $285 of $211) or (ii) the average national annual premium for qualified health plans that offer bronze-level of coverage for a family of six through an Exchange. They must include the penalty amount with their 2014 return.
  • 38. Health Care Reform
    • Medical care itemized deduction threshold
      • The medical deduction threshold used on schedule A to limit itemized deductions was raised from 7.5% to 10%
      • EXAMPLE: AGI of $100,000 will require qualified medical expenses exceed $10,000 instead of the prior $7,500 amount to obtain any benefit.
      • Applies to years after 2012
  • 39. Health Care Reform
    • Additional hospital insurance tax of .9%
      • The employee portion of the Medicare (currently at 1.45%) will increase by .9%
      • Applies to wages exceeding $250,000 on combined wages ($200,000 for single filers).
      • Employers will withhold on earnings above $200,000. This means additional amounts may be due upon filing and presumably refunds if combined earnings don’t exceed $250,000.
      • Provision applies to years after 2012.
  • 40. Health Care Reform
    • Example: Linda works for Acme. She earns $100,000, and her husband Ted makes $210,000 at his job. Their combined wages of $310,000 are $60,000 over the $250,000 threshold for joint filers. However, Acme is not required to withhold any portion of the additional Medicare tax from Linda’s salary since it is under $200,000, and Ted’s employer withholds the additional .9% tax only on $10,000, the earnings in excess of $200,000 since their employers don’t withhold enough to cover all of their additional Medicare tax liability. Linda and Ted should take the shortfall into account for estimated tax payment purposes.
  • 41. Health Care Reform
    • Additional Medicare tax on investment income of 3.8%
      • Tax is equal to 3.8% of the lesser of
        • Individuals net investment income for the year or
        • The amount by which the modified adjusted gross income exceeds a threshold amount.
      • Married filing joint threshold is $250,000. Single is $200,000.
      • Net investment income includes gross income from interest, dividends, annuities, royalties, rents, net capital gain, and income earned from passive sources. Does not include retirement plan distributions, IRA distributions, S-Corp or Partnership income if non-passive.
  • 42. Health Care Reform
    • Example: David is single and has modified AGI of $230,000. Of that amount, $100,000 is net investment income. 3.8% of investment income is $3,800. 3.8% of the excess of $230,000 over $200,000 is $30,000 x 3.8% or $1,140. His liability for the unearned income Medicare contribution tax is $1,140.
  • 43. Health Care Reform
    • Example: Abby, a single taxpayer, has modified AGI of $310,000 and net investment income of $100,000. Her unearned income Medicare contribution tax is 3.8% of $100,000, the full amount of her net investment income, since that amount is less than $110,000 (the excess of modified AGI over $200,000, the threshold for her filing status).
  • 44. Health Care Reform
    • Planning & Analysis
      • The highest marginal rate will soon go from 35% to 43.4%
      • S-Corp Advantage
      • Increase retirement plan savings
      • Borrow inside of entities to reduce income (AGI)
      • Increase usage of Family Limited Partnerships
      • Consider Roth Conversions
      • Consider investments in Annuities & Municipal securities
  • 45. Health Care Reform
    • Various other provisions
      • Flex spending accounts max contribution set at $2,500 (effective 2013).
      • Penalty on non-qualifying HSA distributions increased from 10% to 20% (effective in 2011).
  • 46. Health Care Reform
    • Provisions for Businesses
      • Small Business Tax Credit
      • Employer responsibility
      • Reporting requirements
      • Fees on health plans
      • Excise tax on high-cost employer plans
      • Medical device excise tax
      • SIMPLE cafeteria plans for Small Businesses
      • Non Health-Care Related Provisions
  • 47. Health Care Reform
    • Small Business Tax Credit
      • Small business defined as
        • 25 or fewer employees
        • Average annual wages < $50,000
      • Credit is up to 50% of premiums made by employer
      • Employers with 10 or fewer employees with average wages
      • < $25,000 could get 100% credit.
      • The credit is available in 2010 to 2013 in phased in amounts (35% max credit) and fully effective in 2014.
      • 5% owners and 2% S-corp shareholders are not included in the definition of an employee (Leased employees are counted).
  • 48. Health Care Reform
    • Employer responsibility
      • Large employers are penalized for not sponsoring a plan.
      • Large employers are defined as
        • Having on average at least 50 full time employees (measured on the basis of the prior year)
      • The penalty applies where the employer offers:
        • Non minimum essential coverage
        • Minimum essential coverage that is “unaffordable” (it costs the employee more than 9.5% of household income), or
        • Minimum essential coverage for which the plan’s share of the total cost is less than 60%.
        • The employer must also have at least one employee who received a premium tax credit.
  • 49. Health Care Reform
    • Employer responsibility (continued)
      • For employers that offer no coverage the penalty is generally $2,000 per full-time employee per year. The act excludes the first 30 employees from the penalty calculation.
      • For employers that offer insufficient coverage the penalty is $3,000 per employee receiving the premium tax credit or $2,000 per employee, whichever is less.
      • Penalty amounts are computed on a monthly basis.
      • Effective for years after 2013
  • 50. Health Care Reform
    • Employer responsibility (continued)
      • EXAMPLE: In 2014, Gama Corp. fails to offer minimum essential coverage and has 90 full time employees, 10 of whom receive a premium tax credit for the year for enrolling in a state exchange offered plan. For 60 of its full-time employees (90 full time-employees, less 30), Gama owes $2,000 per employee, for a total assessable payment of $120,000 ($2,000 x 60 full-time employees), which is assessed on a monthly basis.
  • 51. Health Care Reform
    • Employee Responsibility (continued)
      • In 2014, Omega Corp. offers health coverage and has 100 full-time employees, 10 of whom receive tax credit for the year for enrolling in a state exchange offered plan. For each employee receiving a tax credit, Omega owes $3,000, for a total assessable payment of $30,000 ($3,000 x 10 employees). The maximum amount of the assessable payment for Omega is capped at the amount of the assessable payment that would have been assessed for a failure to provide coverage, or $140,000 ($2,000 x 70 full-time employees (100 full-time employees, less 30)). Since the calculated assessable payment ($30,000) is less than the overall limitation ($140,000), Omega owes the $30,000 assessable payment, which is assessed on a monthly basis.
  • 52. Health Care Reform
    • Reporting requirements
      • Insurers (including self insured employers) that provide minimum essential coverage to any individual must report both to the individual and the IRS certain health insurance coverage information beginning in 2014.
      • Employers must report on the W-2, the value of the employee’s health insurance coverage sponsored by the employer beginning in 2011.
      • Another non-health care change is to require 1099 reporting to corporations in 2012.
  • 53. Health Care Reform
    • Fees on Health Plans
      • A fee is imposed on each specified health insurance policy. The fee is $2 times the average number of lives covered under the policy. The insurer is liable for the fee.
      • Begins in 2013 and may increase over time.
      • Self insured plans are subject to the fee as well.
  • 54. Health Care Reform
    • Excise tax on high-cost employer plans
      • The act imposes an excise tax on insurers if the aggregate coverage amount for an employee exceeds a threshold amount.
      • The tax is equal to 40% of the amount by which the coverage exceeds the threshold.
      • For 2018, the threshold amount is $10,200 for individuals and $27,500 for family coverage
      • This is referred to as the Cadillac tax.
  • 55. Health Care Reform
    • Medical device excise tax
      • The act imposes a 2.3% excise tax on sales of certain medical devices. Applies to sales of devices intended for humans, except eyeglasses, contact lenses, hearing aids, and medical devices generally sold at retail to the public for individual use.
      • Begins in 2013
  • 56. Health Care Reform
    • Other provisions
      • SIMPLE cafeteria plans
      • Expansion of the adoption credit
      • 10% tax on indoor tanning services
      • Tax exempt insurers program
  • 57. Health Care Reform
    • Non Health Care Related Provisions
      • Code Section 179 Expensing Election back to $250,000
      • Employer Payroll Tax Holiday for newly hired workers (after 3/18/10) who were formerly unemployed
      • Employee Retention Credit of $1,000 for retaining qualified newly hired workers for at least a year
  • 58. Health Care Reform Excise tax on high-cost employer plans 2018 Increase in medical deduction threshold for taxpayers age 65 and over 2017 Premium assistance credit Excise tax on uninsured individuals Excise tax on applicable large employers Insurer reporting requirements Eligible premiums included in cafeteria plans 2014 Increase in medical deduction threshold for taxpayers under age 65 Additional hospital insurance tax on high-income taxpayers Medicare tax on investment income Fees on health plans (after Oct. 1, 2012) Medical device excise tax Flexible spending arrangement maximum imposed 2013 1099’s required for payments to corporations Adoption credit sunset Adoption-assistance programs sunset 2012 Small business tax credit Prescription drug coverage deduction eliminated W-2 reporting SIMPLE cafeteria plans Restrictions on use of HSA and FSA funds for over-the counter drugs Tax on HSA distributions increase 2011 Adoption credit increase Adoption-assistance program increase Tanning excise tax 2010

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