ABC Taxes, Tips & Tools

As I look over the information flooding in I realize, it doesn’t affect me much for the next  four years, except perhaps my insurance rates may go up and the threshold for itemized medical expenses is going to increase. I am currently shopping for health insurance and the prospects are grim. For the first time I am actually considering going without coverage.  Why?  Because the policies I can afford right now will not prevent me from going bankrupt in a medical emergency and do not pay for anything until an outrageous family deductible is satisfied.  I understand having insurance may make the difference between a doctor seeing me and not seeing me, but as a basically healthy person I am seriously considering rolling the dice, mostly because I just can’t afford it anymore. I know I am not alone. Update: I did finally get some family coverage-a plan with a high deductible that doesn’t qualify as an HDHP-go figure, but the price is less than half of the ghastly and expensive plan offered by my mate’s new employer.

Does health care reform help with my current dilemma? No.  I have to wait until 2014 then maybe it helps… or not. My crystal ball doesn’t see that far into the future.

In my opinion Health Care Reform does nothing to address the reasons why health care costs have skyrocketed. According to some analysts insurance costs will continue to rise.  As look what happened with credit cards in advance of that reform being enacted, I expect health insurance providers are going to keep raising rates and messing around with Joe-average consumer until 2014 as well.

Getting down off my soap box and moving along… Since the House Reconciliation Act strikes out or modifies a number of provisions in the Senate’s Patient Protection Act to which House members had objected, the Senate now must pass the “sidecar” House Reconciliation Act before it becomes law. Who knows how long that will take and what the final result will be.

Update: The Senate passed a sidecar that the House signed off on; President Obama is signed off on it March 30, 2010.  In the “new” version – banks are being stripped of the power to do student loans-in the past the loans were guaranteed by the government anyway, so the taxpayers were taking all the risk and the banks were making all the interest.  This bill will not change the status of existing student loans. What does this have to do with health care? Not much. Why did the banks get such a sweetheart deal in the first place? Dunno.  Weird how congress works.

The entire health care reform law rests on the idea that if everybody is paying into the pool, costs for sicker people will come down, therefore the law requires all individuals to have health insurance coverage by 2014; those who choose not to have insurance would pay a tax. Individuals who currently have coverage and wish to retain that coverage can do so under a “grandfather” provision in the heath care package and the coverage will be deemed to meet the individual’s responsibility to have health coverage. A similar grandfather provision applies to employers that currently offer coverage. Individuals covered by Medicare, Medicaid, Veteran’s affairs and other government programs would be regarded as having essential coverage.  The IRS will oversee much of the implementation of health care reform.

The health care reform bill means new obligations for insurance companies, new responsibilities for employers and eventually every individual will be required to have coverage or pay a tax. Some of the new law’s provisions take effect in a matter of weeks. Many other features of the health care overhaul won’t take effect until 2014 or even later.

• The law doesn’t require employers to provide health insurance benefits; however, large employers (organizations with 50 or more employees) that don’t offer insurance will have to pay an annual tax of $2,000 per full-time worker. Businesses with more than 200 employees must automatically enroll workers into their health insurance plans.  Employees would then be able to opt out if they choose.
• Small-business tax credits of up to 35% will take effect this year to help organizations with 25 or fewer employees pay for affordable employer-provided insurance. Update: Qualified Small Business: those with 25 or fewer employees and average annual wages of $50,000 or less. Starting in 2014 the small business will have to pay 50% to be eligible for the credit.
• Qualified small businesses will be able to purchase insurance for employees through state-based exchanges known as Small Business Health Options Programs (SHOPs).  They will be designed to allow small employers to pool risk together, ideally lowering coverage costs.  SHOPs must be in place by 2014. If you’re a small business and even one of your employees opts out of employer-provided coverage in favor of insurance available through the state-based exchanges, you could be required to provide a voucher worth the value of the per-employee premiums you pay under your plan.
• 2011: Employees will no longer be able to use FSA funds to pay for over-the-counter medications. The penalty for using HSA for non health care related expenses goes from 10% to 20%. 2103: The law also caps employee contributions to health-related flexible spending accounts (FSAs) at $2,500 per year & indexed to inflation thereafter.
• All health plans must maintain dependent coverage for insured employees’ children until they turn age 26.  This rule takes effect in September. If your business provides health insurance coverage, get ready to re-enroll many young people who left their parents’ family coverage sometime within the last few years.
• A high-risk insurance pool will be set up this spring and summer to provide affordable coverage for uninsured people with pre-existing conditions. Even if your company does not offer insurance, you may get questions from workers seeking coverage; refer them to your state’s insurance commission.
• 2011: Large employers that pay for retiree drug coverage (Medicare part D) must declare for accounting purposes whether they intend to keep doing so; your accountants will have to wait for the IRS to set the final rules first.  Also employers must begin reporting the value of health care benefits on employee W2s
• There are new rules limit how and for whom insurance companies can deny coverage.  The health care reform law prohibits insurers from denying coverage to children based on pre-existing conditions, putting lifetime dollar limits on coverage and canceling coverage retroactively except in cases of fraud. Similar rules for adults won’t kick in until 2014.
• For some low income individuals and families, their premiums will be capped at a percentage (2-9.5%) of their income.

How do they pay for it?

• There will be a 40 percent excise tax on high-dollar health insurance plans, to begin in 2018 payable by the insurer, which they can pass along to their customers
• 2013: an increase in Medicare payroll taxes starting in 2013 on taxpayers in the $200,000- plus income category ($250,000 for joint filers)
• There will be an 10% indoor tanning tax beginning July 1, 2010.
• New fees on certain health-related industries &  a dozen other “revenue raisers” are also included in the final bill.
• 2013: While not exactly a revenue raiser, taxes for some will increase as the itemized medical expense deduction threshold is raised from 7.5% of AGI to 10% of AGI in 2013. For individuals 65 and older the change doesn’t occur until 2016.

Other Items in the act:

• Denies Biofuel Credit for “Black Liquor,” presumably because of abuses of this tax credit.
• Codifies the Economic Substance Doctrine, the taxpayer’s economic position other than their tax position must change in a meaningful way in engaging in a transaction-mostly affects tax-shelter partnerships & S-Corporations. Violations are subject to stiff, automatically-applied penalties of 20 or 40 percent, depending on the underlying transaction and level of disclosure.
• Increased corporate estimated tax payments on corporations with $1 Billion dollars in assets.
• 2012: Adds corporations to information reporting; businesses will be need to get taxpayer identification info from corporations they pay more than $600 a year to for services and property (that’s a lot more 1099-MISCs folks) and report those payments.

Advice to businesses: Stay in contact with your health insurance broker or carrier.  They’ll have information as soon as it’s available. Talk to your FSA provider about implementing changes the FSAs as soon as possible as employees are going to start want to know what they need to do now.  It’s up to you to provide your employees about how the new mandates affect them, ask your benefits carrier for materials you can pass along to your employees.

Individuals should also stay in touch with their insurance broker or carrier.

And hang on. It’s going to be a bumpy ride.

What do you think about health care reform? What does health care reform mean to you?  Do you expect to receive any benefit or experience any harm in the near-term, or long-run?

As always, small business services and taxation are our business.  If you need help Please give Art & Business Consulting a call.  We would love to engage you as a client.

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