Healthcare ReformFinancial Impact

Presented By: Joel Flinchbaugh, CPASmith Elliott Kearns & Company LLC

March 2010, Congress passed the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010

Estimated cost - $940 billion over 10 years Expand coverage to 32 million Americans

Healthcare Reform

Changes for Business◦ Summary of benefits◦ W-2 reporting◦ FSA limits◦ Medical Loss Ratio rebate◦ Minimum Essential Coverage

Tax Impacts to Individuals◦ Increased Medicare Taxes◦ Surtax on Unearned Income◦ Medical Expense Deduction◦ Health Insurance Requirement◦ Premium Assistance Credit

Agenda

CHANGESFor

BUSINESS

◦ Uniform summary of benefits and coverage explanations in plain language

◦ Must be provided at plan renewal on or after 9/23/12

◦ Revised summary of changes must be given 60 days prior to effective date

◦ Penalty of up to $1,000 per failure to provide

Summary of Benefits

Cost of employer sponsored coverage must be reported on employee’s W-2 beginning with the 2012 tax year.

Employer’s issuing less than 250 W-2’s exempt until 2013

Reporting is for information purposes only Do not have to provide for individuals who would not

otherwise get a W-2 (retiree, Cobra) Penalty for failure to comply (up to $250,000 per

year)

W-2 Reporting

Effective 1/1/2013 max election for employee is $2,500◦ No previous federal mandated limit

Plan documents must be amended by 12/31/2014

Flexible Spending Accounts

Insurers required to spend so much of premiums on claims-excess refunded to employer

Employer must distribute rebates to participants in some way…

Distribute to enrollees/improve benefits/reduce future employee contributions

Allocation amongst participants must be fair and reasonable

Must be used within 3 months of receiving

Medical Loss Ratio Rebates

In 2014-Employers with 50 or more employees who DO NOT offer health coverage…

Must offer insurance to full-time employees or pay a penalty

Fine is $2,000 per employee, but first 30 employees are not counted….so with 65 employees penalty is only paid on 35 of them

Minimum Essential Coverage“Pay or Play”

Employer with 50 or more employees who DOES offer health coverage…but has at least one Full time employee receiving a tax credit in the exchange will pay the lesser of…

$3,000 for each employee receiving a credit or $2,000 for each full time employee

An individual with family income up to 400% of federal poverty level is eligible for credit if:

The value of employer coverage is less than minimum standard (does not cover 60% of costs) or...

The employer requires employee to contribute more than 9.5% of employee’s family income toward coverage

Minimum Essential Coverage“Pay or Play”

CHANGESFor

INDIVIDUALS

Current Social Security Taxes:◦ 6.2% (4.2% in 2012) to a maximum $110,100 for

OASDI (old age survivor disability insurance)and

◦ 1.45% on all wages for Medicare (HI)

Withheld from wages; employer matches Self-employed pay both shares; receive

deduction for ½ of tax on 1040

Increased Medicare Tax

2013—Medicare increases 0.9% for employee only on wages over - $200,000

For joint returns additional tax on joint earned income in excess of $250,000.

Self-Employment Tax increases to same amount

No increase in Self-Employment deduction May have to remit additional Medicare on

1040

Increased Medicare Tax

Also effective in 2013 New 3.8% Surtax on investment income Calculated on the lesser of:

1. Net investment income OR the2. Excess of taxpayers’ modified AGI over

$200,000 ($250,000 for MFJ)

Medicare Surtax

Interest Dividends Annuities Royalties Rent Capital Gains Passive income from business (limited

participation)

What is included as net investment income?

Active business income Qualified retirement plan and IRA

distributions Self-employment income Tax-exempt interest Sale of principal residence

What is excluded as net investment income?

Barack & Michelle, MFJ Salaries $280,000 + net interest income

$20,000 = AGI $300,000 Taxed on lesser of:

1. Net investment =$20,000 OR2. Excess of AGI over $250,000 =$50,000

Result $760= 3.8% surtax on $20,000

Example

Currently, medical expenses allowable if GREATER than 7.5% of AGI

2013, threshold increases to 10% of AGI

Exception-Taxpayer or Spouse is or turns 65 during 2013-2016, 10% threshold is not effective until 2017

Medical Expense Deduction

Taxpayer AGI of $100,000 receives no deduction of unreimbursed medical costs until those expenses exceed $7,500 for 2011-2012

2013- medical expenses > $10,000 to be deductible

Medical Expense Example

2014 & 2015 phase in period—penalty on individuals who fail to maintain “minimum essential coverage”

Penalty: 2014 = greater of 1% of household income OR $95 per uninsured

2015 = greater of 2% of household income OR $325 per uninsured

Failure to Maintain Health Insurance

In 2016, penalty is greater of:

2.5% of taxpayer’s household income (In excess of filing threshold)

OR

$695 per uninsured adult plus half the amount per child under 18.

Penalty has a cap of $2,085 per household

Failure to Maintain Health Insurance

Individual must maintain minimum essential health care coverage under:

Medicare, Medicaid, TRICARE, veteran’s care or other governmental programs

Employer sponsored group plan Grandfathered health plan Any coverage recognized by Department of

Health & Human Services

How to avoid penalty?

Health insurance premium exceeds 8% of household income

Income below 1040 filing threshold

Exemptions to Penalty

Penalty included on 1040 IRS may not impose interest on late

payment Not subject to criminal prosecution or

assessment IRS may not file a lien or levy property

◦ May reduce refund owed to taxpayer Penalty criticized as unconstitutional

◦ Supreme Court has ruled it is a tax and constitutional

Voluntary?????????????

Penalty on Health Insurance

2014 - Refundable credit to cover cost of premiums for health insurance purchased through a state health exchange

Credit based on income Individual pays plan difference of premium

and credit (credit goes directly to exchange) Low income individuals

Premium Assistance Credit

There are a lot of changes coming to the tax system as a result of healthcare legislation

Clarifications are coming almost continually Keep in contact with your professionals

(insurance agent, attorney, CPA) Good luck!!!

Conclusion

Joel Flinchbaugh, CPASmith Elliott Kearns & Company

Email: jflinchbaugh@sek.comPhone: (717) 243-9104

Do you have any questions?