Healthcare and Taxes, Part 1

By March 23, 2010 Individuals

Sunday night, by a margin of four votes, the Senate version of Healthcare Reform passed and will be signed into law today.  With all the uncertainty, one thing is for sure: America is about to get a four year economics lesson.  Get out your supply & demand charts from Economics 101 class and follow along.  Today we will look at 2010-2013.  In Healthcare and Taxes, Part 2 we will look at the major provisions of the bill set to hit in 2014, and in Healthcare and Taxes, Part 3 we will take a closer look at some of the intricate details of this bill .  Please keep in mind that this is a non-comprehensive summary of a 4,000 page bill.  As we learn more, we will continue to update you and as always help you find ways to pay less taxes.

The first thing we notice about this bill is that much of it doesn’t take effect right away.  In fact, if the Senate passes the House fixes that were also approved Sunday night, then most of this bill won’t take effect until 2014.  So what do we face right away?

In 2010, we see expansions of coverage.  Children with pre-existing conditions cannot be denied coverage, even if parents had ample time to establish coverage before the condition was discovered.  The definition of a dependent (for insurance purposes only) will change to anyone up to 26 years of age and insurance companies must cover them under their parents’ plan.  Seniors who have spent more than $2,830 on prescriptions will get an extra $250.  There will be tax credits for businesses with up to 25 employees, but that may be subject to average salary levels which could be as low as $25,000 a year.  Hospitals, healthcare providers, home health agencies and others will face significant reductions in payments.  Oh, and the icing on the cake: a 10% tax on indoor tanning.  Good thing we live in Florida!

In 2011 we see a voluntary long-term care benefit created to cover nursing home costs or home health, but benefits won’t start until you’ve been paying in for five years.  Medicare patients who have spent that $2,830 get a 50% discount on name brand drugs.  Doctors in underserved areas, who are still taking Medicare patients, get a 10% bonus to continue taking Medicare patients.  Payments to Medicare Advantage are frozen, but funding for community health centers is boosted.  Whether or not those centers will be able to perform abortions with that funding is still up in the air.  And finally, the bill imposes a $2.3 billion tax on drugmakers which will go up every year.  It shouldn’t take an economics degree to know who will pay that $2.3 billion tax.

Now pay attention because this affects you as an employer: starting in 2011, you must report the value of employee healthcare benefits on their W-2s.  S Corporation shareholders are already required to do this for themselves, which has proven to be a compliance nightmare missed even by national payroll services.  Make sure you work with your payroll service provider next year to make this transition as smooth as possible.

In 2012 we will have the public option coming on line.  A new government program will be set up to create non-profit insurance co-ops to compete with commercial insurers.  While it is not a government run insurance program, it will be interesting to see how it is implemented and subsidized.  Also, hospitals with high readmission rates will be penalized and possibly cut off through lower Medicare reimbursements.

In 2013 we have some good news.  Insurance company paperwork will be standardized, which should hopefully eliminate confusion and cut costs.  I suppose for the cynic, the bad news is that it is being standardized by the Government.  More bad news in 2013 includes limits on Flexible Spending Accounts (cafeteria plans) deferrals and higher taxes.  The wage threshold for deducting medical expenses will go up from 7.5% to 10% for all Americans, and we will pay a 2.3% sales tax on medical devices.  All these additional taxes will take effect in 2013 but the only mandates are that insurers provide coverage to children with pre-existing conditions and 26 year olds under their parents’ plan.  There is some relief for Medicare patients (not enrolled in Medicare Advantage), however experts feel Medicare doctors and providers are hit hardest by the bill.

Employers, pay attention again.  For individuals making $200,000 (joint filers making $250,000) Medicare taxes are going up .9%.  Also these individuals will also owe an additional 3.8% in taxes on investment income, including stock sales, dividends, interest, rental income, etc.  If you are still trying to prepare your payroll taxes alone – good luck.  We recomend with all of these changes that you use a payroll service provider that is prepared and on top of these changes. These additional taxes could possibly be avoided with proper planning if your are on the boarder of the $200,000 or $250,000 thresholds.  We will keep you posted on creative planning ideas that arise if you fall into this category.

What if you have a great insurance plan and want to keep it without paying penalities.  Good news, any penalty for high priced insurance plans doesn’t hit until 2018.  However we believe that the competition from non-profit co-ops won’t provide much relief when most of the taxes and Medicare cuts will increase actual medical costs so you probably will see your out of pocket medical costs still rise even with great insurance coverage.

Stay tuned, as we will cover 2014 and see if there is a light at the end of the tunnel.