What does Healthcare Reform mean to me?
Last month the Supreme Court ruled on several challenges to the Patient Protection and Affordable Care Act (a.k.a. “Healthcare Reform”, “Obamacare” or PPACA). While the details could fill volumes, in a nutshell it means implementation of the law will continue unless there is a repeal by Congress. Given that many provisions will not phase in until 2014, repeal is still a possibility, but you still should start planning now for the implications of this law.
On the positive side, the law provides a number of advantages to individuals. These include better coverage for preventative care, coverage for dependents up to age 26 (student or not, married or single), elimination of annual and lifetime coverage limits, and gradual elimination of restrictions on pre-existing conditions. The law also expands coverage for low income individuals and families, and provides tax credits to many households to make purchasing coverage more affordable.
For many the biggest bone of contention in the law is the “individual mandate”. This provision was the most hotly contested, and ultimately the Supreme Court found it constitutional. This means starting in 2014 most people will be required to participate in some form of health insurance program. Those choosing not to participate will be subject to a fine (or tax as the Supreme Court ruled) based on their income. Fines start at $95 or 1% of income (whichever is greater) in 2014, and increase to $695 or 2.5% of income by 2016.
Other issues to consider for your personal taxes are:
- MSA and HSA Penalties: Tax penalties for using MSA or HSA money for non-medical expenses increased to 20% this year.
Starting in 2013:
- Increased AGI Threshold for Medical Expenses: If you itemize, medical expenses will now have to exceed 10% of adjusted gross income (AGI) before you can start writing them off. This is up from 7.5%.
- Increased Hospital Insurance Tax: If you earn over $200,000 ($250,000 if married filing jointly) you will pay an extra 0.9%. This tax also now applies to investment income under some circumstances.
For your Business:
If you average fewer than 50 full time employees then the PPACA may not have a dramatic affect on your business. However, starting in 2014 companies with 50 or more full time employees will have to provide “minimum essential coverage” to employees and their dependents or face fines. Although the exact mechanics of calculating these fines are as complex as you might expect them to be, for most businesses the fine will probably be less than the cost of providing coverage. This means that many businesses that don’t currently provide coverage will probably opt to pay the fine instead.
The law also means that the cost of coverage will continue to rise since insurance companies are now required to provide broader coverage. These rising costs could drive some businesses to drop existing plans and opt to pay penalties instead.
There are a number of additional provisions for small, medium and large businesses, including simplifying section 125 (cafeteria) plans for companies under 100 employees, new reporting requirements, other new taxes and penalties, and even some tax credits for smaller companies. So many in fact, that if I tried to go into them I would break my promise to keep my update brief!
Many have been holding their breath wondering what the Supreme Court might do with the PPACA. Now that we know that answer it is time to start preparing for the eventual implementation of this law. While it is still conceivable that congress might overturn all or part of this, don’t count on it. You should start working with your tax, legal, and benefits advisers to prepare for the changes this law brings.
If you need help deciphering the implications for your personal or business situation give me a shout! I hope you found this helpful, and please feel free to pass it along to your friends and colleagues!
McFarlain Group is not a licensed CPA practice. All CPA services are provided by H. Lee McFarlain, Jr., CPA.
© 2012 by H. Lee McFarlain, Jr. and the McFarlain Group, all rights reserved.
- U.S. Supreme Court Affirms Health Care Reform When and How Will This Affect Your Business? (odysseyonesource.wordpress.com)
- What Obamacare Will Do to Your Taxes (forbes.com)
- So What Exactly Do We Get For Our New Tax? (forbes.com)
- Health reform sticks: Now what? (insurance.com)
- Supreme Court Decision – Harms to Your Privacy and Medical Freedom Still Lie Ahead (illinoisreview.typepad.com)