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Health Insurance Reform
On March 23, 2010, President Obama signed comprehensive health insurance reform into law with the Patient Protection and Affordable Health Care Act. So, what exactly is included in the 2,000-plus pages of legislation and how will it affect you?
Here are some of the key provisions:
- Insurance companies will no longer be able to deny coverage based on a pre-existing condition. This provision doesn’t go into effect until 2014, but within the next six months, insurers will not be able to deny paying for a particular illness of an already insured child.
- The bill also bolsters the existing Medicare prescription drug benefit. Today, many seniors step into the so-called “doughnut hole.” Right now, once a senior spends $2,700 on prescription drugs, coverage stops until that same senior exceeds $6,154 in prescription drugs. Effective immediately, seniors will receive $250 from the government to help. Each year, that help increases until, finally, the government will pay 75% of the costs within the donut hole.
- Effective immediately, small businesses that offer health coverage to employees will be eligible for tax credits of up to 50% of the premium costs. The full 50% credit is available for those with ten or fewer employees and with average wages of $20,000 or less. The credit phases out as employee size and average wages increase, and is fully phased out for firms with 25 employees or average wages of $50,000.
In order to determine eligibility for the credit, employers must follow this process:
- Determine which employees are to be taken into account for purposes of the credit.
- Determine how many hours each employee worked.
- Calculate the number of full time employees. This is calculated by adding the total amount of hours worked by each eligible employeee (a maximum of 2080 hours per employee) and dividing by 2080. You then round down to the lowest whole number.
- Determine the average annual wages per full time employee (determined above).
- Determine the actual amount paid in qualified premiums by the employer. The premiums paid must be paid via a qualifying arrangement.
- Self-employed taxpayers will be able to deduct the cost of insurance for their children until the age of 26 because the bill allows all parents to keep children on their policies until that age.
To pay for the bill, the following provisions are in the bill:
- A 40% tax would be levied on high-value or “Cadillac” insurance policies, which are those that cost over $10,200 a year ($27,500 for families).
- The Medicare tax would be increased 0.9% effective in the 2013 tax year for individuals who earn more than $200,000 (over $250,000 for families).
- There is also a 3.8% tax on unearned income (including dividends and interest) for individuals
- making over $200,000 (over $250,000 for families). This also, will start in the 2013 tax year.
- The law will also impose fees on various sectors of the health industry. These include a fee on prescription drug companies, an excise tax on medical
- devices, an annual fee on health insurance companies, and a 10% tax on indoor tanning salons.
This is a very large bill and the wrangling continues. The full ramifications are just beginning to be understood. At Napier & Company, we’re committed to helping you make sense of how medical insurance reform will affect your finances and available tax benefits. We will continue to watch this reform and provide you with information as we have it.
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