Now that most of the rhetoric is over and the legislation has passed, people are starting to take a hard look at the Patient Protection and Affordable Care Act of 2010—what it will do and what it will mean for them. The implications are HUGE, and I’ll try to cover some of them. Because this is tax month, I’ll start with what health reform will do to your taxes.
- The insurance mandate. After 2013, those without qualifying insurance coverage will be penalized on their taxes, by either $695 per year up to a maximum of $2,085 per family, or 2.5% of household income (whichever is greater). Starting in 2016, the penalty will increase annually by the cost of living. But exemptions will be available on the grounds of financial hardship and religious objections, as well as for Native Americans, prisoners, illegal aliens, anyone for whom the cheapest plan exceeds 8% of household income, and Americans residing outside the United States.
- Premium assistance tax credits. After 2013, the law creates a refundable tax credit for eligible individuals and families who purchase health insurance through an exchange. The premium assistance credit, which is refundable and payable in advance directly to the insurer, subsidizes the purchase of certain insurance plans through an exchange. Under the provision, an eligible person enrolls in a plan offered through the exchange and reports his or her income to the exchange. Based on this information, the person receives a premium assistance credit based on income, and the IRS pays the premium assistance amount directly to the insurance plan. The individual pays the plan the difference between the premium assistance amount and the premium charged to the plan. The premium assistance credit will be available to individuals and families with incomes of up to 400% of the federal poverty level (using 2009 data, that would be $43,320 for an individual and $88,200 for a family of four)—provided they aren’t eligible for Medicaid, employer-sponsored insurance, or other acceptable coverage. Credits will be available on a sliding scale.
- Higher Medicare taxes on high-income taxpayers. Under current law, most taxpayers will pay the same amount they’re already paying (2.9% with the employer paying half). But those with incomes above $200,000 ($250,000 for couples) will pay an additional 0.9% on any money made over these amounts. Self-employed persons will pay 3.8% on earnings
above the threshold.
- Extension of the Medicare payroll tax to investments. Under current law, the Medicare tax applies only to wages. Beginning in 2013, it will for the first time apply to investment income. A new 3.8% tax will be imposed on the net investment income of single taxpayers with adjusted gross incomes (AGIs) above $200,000 and joint filers with AGIs above $250,000. Net investment income includes interest, dividends, royalties, rents, gross income from trade or business involving passive activities, and net gain from disposition of property (other than property held in trade or business). However, the new tax will not apply to income from tax-deferred retirement plans. And it will apply only to income in excess of the $200,000 and $250,000 thresholds.
I’ll cover much more in later blogs, but this is a good start, especially as no one seems to know how the government will enforce the legislation—or pay for it! Your patients will want to know, and most likely you will, too. Above I’ve described part of the plan. But be aware that the real issues for hospitals and health facilities will be determined largely by the regulations written to enforce the law.