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Legislative Alert: 2013 Changes to Medicare and Medicaid


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On January 1, 2013, several important changes to Medicare and Medicaid mandated by the Patient Protection and Affordable Care Act (PPACA) took effect. This Legislative Alert provides a brief update of many of those changes. For any specific legal or financial advice, it is recommended that you consult with a licensed professional in your state.

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Legislative Alert: 2013 Changes to Medicare and Medicaid

  1. 1. Legislative Alert: 2013 Changes toMedicare & Medicaid
  2. 2. On January 1, 2013, several important changes toMedicare and Medicaid mandated by the PatientProtection and Affordable Care Act (PPACA) tookeffect. This Legislative Alert provides a brief updateof many of those changes. For any specific legal orfinancial advice, it is recommended that you consultwith a licensed professional in your state.
  3. 3. Medicare Tax IncreaseBeginning on January 1, 2013, employers mustwithhold an additional 0.9 percent Medicare taxfrom employee paychecks with incomes overcertain thresholds.
  4. 4. Questions and AnswersQ. When are employees or individuals subject to thetax?A. If an employee or individual’s wages, compensation, orself-employment income is above certain thresholds, theperson will be subject to the increased tax. The tax will applyto wages and compensation above the following thresholds:
  5. 5. Questions and AnswersQ. What wages are subject to the tax?A. Any wages that are currently subject to the Medicaretax will be affected by the tax increase.
  6. 6. Questions and AnswersQ. Does an employer have to withhold the additionaltax from my employee’s wages?A. Yes. An employer must withhold the additional tax fromwages paid to an individual in excess of the $200,000 amountregardless of the individual’s filing status or wages paid byanother employer.
  7. 7. Questions and AnswersQ. If an employee surpasses the threshold limit viamultiple sources of income, can the employee requestadditional withholding from his employer?A. Not specifically for the purpose of the additional Medicare tax. If anemployee anticipates that their total income will surpass the threshold,but not through a single employer, the employee may request theemployer withhold an additional amount of income withholding on the IRSForm W-4. The additional income tax withholding will then be appliedagainst the employee’s taxes as shown on their tax return, including anyadditional Medicare tax liability.The employee also may make estimated tax payments if the employeebelieves that he or she will exceed the threshold via multiple sourcesof income.
  8. 8. Questions and AnswersQ. If an employee or individual makes over $200,000annually, files jointly with his or her spouse, and thecouple makes less than $250,000, can the employeeask the employer to stop withholding the additionaltax?A. No. The employer must withhold the additional tax amount.However, the couple may claim credit for any additionalMedicare tax liability against the total tax liability on yourindividual income tax return.
  9. 9. Questions and AnswersQ. Are employer’s required to match the amount of theadditional Medicare tax?A. No. Employers are not required to match the additional taxamount.For more information on the increased Medicare tax, pleasesee the following IRS Question and Answer page.
  10. 10. Employer Retiree Coverage SubsidyAnother key change in 2013 concerns the Retiree DrugSubsidy Reduction. As of January 1, 2013, employerswill still receive the tax-free subsidy, but employers willno longer be able to deduct the cost of prescriptiondrugs to the extent reimbursed by the federal subsidyon their federal tax returns.
  11. 11. Questions and AnswersQ. How is the Employer Retiree Coverage Subsidychanging?A. Prior to January 1, 2013, employers were eligible for a tax-free subsidyof 28% of the costs they incurred to provide a prescription drug benefitprogram to their retirees. This subsidy was authorized by the MedicareModernization Act of 2003. Employers were also able to deduct anyoutlays made with these subsidies to provide retiree drug coverage forincome tax purposes.This year, employers may still receive the subsidy, but will not be able todeduct the cost of the prescription drugs to the extent reimbursed by thesubsidy on federal tax returns.
  12. 12. Questions and AnswersQ. What types of coverage does this apply?A. Prescription drug coverage that is actuarially equivalent tothe coverage offered under Medicare Part D is eligible for thefederal subsidy.
  13. 13. Questions and AnswersQ. Is this coverage included in taxable income?A. The coverage is not included as taxable income.However, this change will eliminate the tax deduction to theextent of the subsidy received.
  14. 14. Questions and AnswersQ. What kind of impact will this change have onbusinesses?A. Although the change just recently went into effect, aTowers Watson study estimated the total cost for U.S.corporate financial statements would be $14B if companiesdid not shift their retirees out of drug subsidy plans. AnAmerican Benefits Council study estimated that between 1.5Mand 2M retirees would have their drug coverage terminatedbecause employers would be forced to shift them intoMedicare Part D coverage.The exact impact on businesses remains to be seen.
  15. 15. Increasing Medicaid Payments for Primary Care DoctorsBeginning in 2013, the federal government is increasing Medicaidpayment rates to primary care physicians. This increase is inresponse to Medicaid programs preparing to cover more patients.In 2013, the Medicaid payment rates are being increased to atleast 100 percent of associated Medicare rates.From 2011 to 2015, the federal government will also providefunding to Medicare to provide a 10 percent bonus payment forprimary care provided by qualified physicians. However, it shouldbe noted that Medicare and Medicaid reimbursements aretypically lower than private payer reimbursement rates.
  16. 16. Expanded Authority to Bundle Medicare PaymentsTo encourage hospitals, doctors and other providers to worktogether, PPACA allows for payment bundling. This meanshospitals, doctors and providers are paid a flat rate for an episodeof care rather than the current fragmented system where eachservice or test is billed separately to Medicare.These are only some of the changes that will be implemented in2013.We will continue to keep you apprised of changes as they occur,and will tell you what you need to know to remain compliant withPPACA.
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