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.

The usual dis­claimers: Although ABC has made every effort to insure the accu­racy of Taxes, Tips and Tools, mis­in­for­ma­tion, dis­in­for­ma­tion, changes, mis­takes, typos and hack­ers hap­pen, there­fore Art & Busi­ness Con­sult­ing LLC takes no respon­si­bil­ity for any action taken or results based on the infor­ma­tion sup­plied here in. The con­tent of this blog gen­er­ally applies to busi­ness and indi­vid­ual tax­a­tion in the United States of Amer­ica.  Inter­nal Rev­enue Ser­vice Cir­cu­lar 230 Dis­clo­sure:  As pro­vided for in Trea­sury reg­u­la­tions, advice (if any) relat­ing to fed­eral taxes that is con­tained in this com­mu­ni­ca­tion (includ­ing attach­ments) is not intended or writ­ten to be used, and can­not be used for the pur­pose of (1) avoid­ing penal­ties under the Inter­nal Rev­enue Code or (2) pro­mot­ing, mar­ket­ing or rec­om­mend­ing to another party any plan or arrange­ment address herein.  Art & Busi­ness Con­sult­ing LLC cur­rently does not have a cer­ti­fied pub­lic accoun­tant, human resource spe­cial­ist, or an attor­ney on staff; this infor­ma­tion is purely for edu­ca­tional pur­poses and not to be con­strued as legal or finan­cial advice. Art & Busi­ness Con­sult­ing LLC and its employ­ees, mem­bers and asso­ciates are not engage to prac­tice law; you always should dis­cuss legal mat­ters with your attor­ney before talk­ing to any­one else.