One thing Obama Care won't cover

[Doc]

If you eliminate the mandated coverage, doesn't that basically screw up the whole premise of how the health care bill was supposed to "reduce costs?"

Yes it does. The upshot being that the health care bill can't/won't work and will have to be scrapped. I was under the impression that the only penalty was the $750 one, which was a joke. But 2.5% of mAGI is a major hit and is truly a deterrent. Although I think this is largely academic, since I believe a Repub will win in 2012 and the House and Senate will be Repub majorities, and they'll do whatever it takes to repeal this.

[keepthefaith]

Yes it does. The upshot being that the health care bill can't/won't work and will have to be scrapped. I was under the impression that the only penalty was the $750 one, which was a joke. But 2.5% of mAGI is a major hit and is truly a deterrent. Although I think this is largely academic, since I believe a Repub will win in 2012 and the House and Senate will be Repub majorities, and they'll do whatever it takes to repeal this.

 

 

Last night, 3/21/2010, the House passed the Senate’s health care act (The “Patient Protection and Affordable Care Act”, HR 3590), which will send the matter onto the President. The President is expected to sign it this week. To avoid reconsideration by the Senate of the House’s changes, the changes are in a separate budget reconciliation bill (The “Health Care and Education Affordability Reconciliation Act”, HR 4872), which now goes to the Senate for consideration, scheduled to begin tomorrow 3/23/2010. Since the House’s changes are in the form of a budget bill, it needs only 51 votes to pass and is not subject to filibuster. Therefore, directly or indirectly, these provisions are a “done deal” unless the Senate changes any of the House’s provisions in HR 4872, which is not expected.

 

The following is a summary of the tax issues in these bills, which is treated as really one bill for this discussion.

 

 

Coverage required. Individuals who are not eligible for Medicaid or Medicare or other government-sponsored coverage are required to maintain minimum health insurance coverage. Effective – beginning after 2013. Failure to do so brings a nondeductible penalty. The penalty is the greater of –

A flat penalty

Year 2014 – $95 per person

Year 2015 – $325 per person

Year 2016 – $695 per person

Thereafter – $695 from 2016 as indexed for inflation

A percentage of income penalty –

Year 2014 – 1% of income

Year 2015 – 2% of income

Year 2016 and thereafter – 2.5% of income

Fine print.

“Income” is modified adjusted gross income.

For those under age 18 or in college, the flat penalty is one-half of the above amounts.

If the flat penalty exceeds triple the percentage of income penalty, then the penalty is limited to triple the percentage of income.

If the taxpayer is not required to file a return because their income is below the filing minimums, no penalty would apply.

Employer mandate. Employers that fail to offer minimum coverage during any month with a full-time employee is liable for an additional tax. The penalty is $2,000 per employee, calculated monthly. Thus the monthly payment is $2,000, times 1/12, times the number of full-time employees during that month. The penalty applies to employers with 50 or more workers, but the first 30 workers are exempt from the calculation.

Example. XYZ Inc. has 52 full-time employees in a particular month. It does not offer health insurance for full-time workers, and thus is subject to the penalty. The penalty for the month is $2,000 x 1/12 x 22 (the first 30 employees are exempt), or $3,666.67.

Fine print.

Businesses with fewer than 50 full-time employees would be exempt.

Employers with extended enrollment waiting periods (exceeding 90 days) are liable for an additional tax.

Additional information returns will be required to document the individuals covered, the amount of coverage, and the amount of the premium paid by the worker.

Small business credit. A tax credit is provided to small businesses who provide coverage. A small business is one with fewer than 25 employees and average annual wages under $40,000. Beginning in 2011, the credit is up to 50% of the employer’s contribution towards the employee’s premium. For employers with 10 or fewer employees and average annual wages under $20,000, the credit is up to 100% of their contribution. Also, participation in a state exchange pool for small employers would be available.

 

 

Medicare taxes. Additional funding taxes are imposed after 2012.

The Act imposes an additional 0.9 percent Medicare tax on earned income in excess of $200,000 for individuals and $250,000 for families.

The Act imposes a Medicare tax of 3.8 percent on investment income for individuals with AGI above $200,000 and joint AGI above $250,000.

Fine print.

Both additional Medicare taxes are applied to the employee portion of the tax only. The employer Medicare tax does not change.

Neither the $200,000 nor the $250,000 limits are indexed for inflation.

Net investment income is defined as interest, dividends, royalties, rents, capital gains, and passive business income. It does not include distributions from qualified retirement accounts, IRAs, and 403(b) and other plans.

The tax also applies to self-employed individuals, and the Medicare tax on investment income also applies to estates and trusts.

Tax on high-cost insurance. Beginning in 2018, a 40-percent excise tax is imposed on insurers if annual premiums exceed $10,200 for individual coverage and $27,500 for family coverage. For those in high-risk professions and for retirees age 55 and older, higher limits are available of $11,850 for individual coverage and $30,950 for family coverage.

Fine print.

These amounts are indexed for inflation.

Employers are required to disclose the cost of health insurance on form W-2.

Dental and vision benefits are not considered when determining if the premiums exceed these limits.

 

FSA changes. Certain changes are made after 2012.

The definition of qualified medical expenses for health flexible spending accounts (“FSAs”), health savings accounts (“HSAs”), and health reimbursement arrangements (“HRAs”) is changed to agree with the definition of deductible medical expenses. This means that over-the-counter medications are no longer eligible for FSA, HSA, or HRA tax-free payment.

FSA contributions are capped at $2,500 per year, indexed for inflation. Cafeteria plans would have to reduce their plan limits accordingly.

Penalties for distributions from HSAs that are not used for medical expenses is increased from 10% to 20%. Similar penalties for Archer medical savings accounts (“MSAs”) are increased from 15% to 20%.

Deductible medical expenses. Currently, itemized medical expenses are subject to a floor of 7.5% of adjusted gross income. In other words, medical expenses must exceed this minimum before they provide an itemized deduction benefit. After 2012, this floor is increased to 10% of adjusted gross income. However, for tax years 2013 through 2016, if the taxpayer or spouse attained age 65 during the tax year or in any prior tax year, the floor of 7.5% remains.

 

 

Premium tax credits. The bill enacts tax credits to help those of lesser income to afford health insurance. The credit generally extends to those with household income up to 400% of the federal poverty level (current $88,000 for a family of four, $43,000 for single individuals). The credits are on a sliding scale from 2 to 9.8 percent of income.

[3rdnlng]

Last night, 3/21/2010, the House passed the Senate’s health care act (The “Patient Protection and Affordable Care Act”, HR 3590), which will send the matter onto the President. The President is expected to sign it this week. To avoid reconsideration by the Senate of the House’s changes, the changes are in a separate budget reconciliation bill (The “Health Care and Education Affordability Reconciliation Act”, HR 4872), which now goes to the Senate for consideration, scheduled to begin tomorrow 3/23/2010. Since the House’s changes are in the form of a budget bill, it needs only 51 votes to pass and is not subject to filibuster. Therefore, directly or indirectly, these provisions are a “done deal” unless the Senate changes any of the House’s provisions in HR 4872, which is not expected.

 

The following is a summary of the tax issues in these bills, which is treated as really one bill for this discussion.

 

 

Coverage required. Individuals who are not eligible for Medicaid or Medicare or other government-sponsored coverage are required to maintain minimum health insurance coverage. Effective – beginning after 2013. Failure to do so brings a nondeductible penalty. The penalty is the greater of –

A flat penalty

Year 2014 – $95 per person

Year 2015 – $325 per person

Year 2016 – $695 per person

Thereafter – $695 from 2016 as indexed for inflation

A percentage of income penalty –

Year 2014 – 1% of income

Year 2015 – 2% of income

Year 2016 and thereafter – 2.5% of income

Fine print.

“Income” is modified adjusted gross income.

For those under age 18 or in college, the flat penalty is one-half of the above amounts.

If the flat penalty exceeds triple the percentage of income penalty, then the penalty is limited to triple the percentage of income.

If the taxpayer is not required to file a return because their income is below the filing minimums, no penalty would apply.

Employer mandate. Employers that fail to offer minimum coverage during any month with a full-time employee is liable for an additional tax. The penalty is $2,000 per employee, calculated monthly. Thus the monthly payment is $2,000, times 1/12, times the number of full-time employees during that month. The penalty applies to employers with 50 or more workers, but the first 30 workers are exempt from the calculation.

Example. XYZ Inc. has 52 full-time employees in a particular month. It does not offer health insurance for full-time workers, and thus is subject to the penalty. The penalty for the month is $2,000 x 1/12 x 22 (the first 30 employees are exempt), or $3,666.67.

Fine print.

Businesses with fewer than 50 full-time employees would be exempt.

Employers with extended enrollment waiting periods (exceeding 90 days) are liable for an additional tax.

Additional information returns will be required to document the individuals covered, the amount of coverage, and the amount of the premium paid by the worker.

Small business credit. A tax credit is provided to small businesses who provide coverage. A small business is one with fewer than 25 employees and average annual wages under $40,000. Beginning in 2011, the credit is up to 50% of the employer’s contribution towards the employee’s premium. For employers with 10 or fewer employees and average annual wages under $20,000, the credit is up to 100% of their contribution. Also, participation in a state exchange pool for small employers would be available.

 

 

Medicare taxes. Additional funding taxes are imposed after 2012.

The Act imposes an additional 0.9 percent Medicare tax on earned income in excess of $200,000 for individuals and $250,000 for families.

The Act imposes a Medicare tax of 3.8 percent on investment income for individuals with AGI above $200,000 and joint AGI above $250,000.

Fine print.

Both additional Medicare taxes are applied to the employee portion of the tax only. The employer Medicare tax does not change.

Neither the $200,000 nor the $250,000 limits are indexed for inflation.

Net investment income is defined as interest, dividends, royalties, rents, capital gains, and passive business income. It does not include distributions from qualified retirement accounts, IRAs, and 403(b) and other plans.

The tax also applies to self-employed individuals, and the Medicare tax on investment income also applies to estates and trusts.

Tax on high-cost insurance. Beginning in 2018, a 40-percent excise tax is imposed on insurers if annual premiums exceed $10,200 for individual coverage and $27,500 for family coverage. For those in high-risk professions and for retirees age 55 and older, higher limits are available of $11,850 for individual coverage and $30,950 for family coverage.

Fine print.

These amounts are indexed for inflation.

Employers are required to disclose the cost of health insurance on form W-2.

Dental and vision benefits are not considered when determining if the premiums exceed these limits.

 

FSA changes. Certain changes are made after 2012.

The definition of qualified medical expenses for health flexible spending accounts (“FSAs”), health savings accounts (“HSAs”), and health reimbursement arrangements (“HRAs”) is changed to agree with the definition of deductible medical expenses. This means that over-the-counter medications are no longer eligible for FSA, HSA, or HRA tax-free payment.

FSA contributions are capped at $2,500 per year, indexed for inflation. Cafeteria plans would have to reduce their plan limits accordingly.

Penalties for distributions from HSAs that are not used for medical expenses is increased from 10% to 20%. Similar penalties for Archer medical savings accounts (“MSAs”) are increased from 15% to 20%.

Deductible medical expenses. Currently, itemized medical expenses are subject to a floor of 7.5% of adjusted gross income. In other words, medical expenses must exceed this minimum before they provide an itemized deduction benefit. After 2012, this floor is increased to 10% of adjusted gross income. However, for tax years 2013 through 2016, if the taxpayer or spouse attained age 65 during the tax year or in any prior tax year, the floor of 7.5% remains.

 

 

Premium tax credits. The bill enacts tax credits to help those of lesser income to afford health insurance. The credit generally extends to those with household income up to 400% of the federal poverty level (current $88,000 for a family of four, $43,000 for single individuals). The credits are on a sliding scale from 2 to 9.8 percent of income.

 

 

Thanks, KTF. Now, do you know what the Fed considers a full-time employee? Could this legislation encourage more part-time employees in order to skirt around the 50 employee limit? So, Joe Blow gets to work 2 part-time jobs to equal one full-time job but still isn't provided healthcare? Next the Fed will be changing how they calculate unemployment to exclude anyone working 20 hrs a week from the "unemployed". Brilliant----they've fixed the problem!