On March 23, 2010, President Obama signed into law comprehensive health care reform, the Patient Protection and Affordable Care Act (ACA). Although the constitutionality of the law is still being challenged in the courts, it is important for members to be aware of how the law may affect your practice. Over the next several weeks, the AASM Weekly Update is including a synopsis of certain provisions in the bill. This week’s edition will focus on premium subsidies to employers, reinsurance program, and tax changes related to health insurance.
Premium Subsidies to Employers
The law provides a tax credit to small employers with no more than 25 employees and average annual wages of less than $50,000 that purchase health insurance for employees.
Phase I:Through 2013, it provide a tax credit of up to 35 percent of the employer’s contribution toward the employee’s health insurance premium if the employer contributes at least 50 percent of the total premium cost or 50 percent of a benchmark premium. The full credit will be available to employers with 10 or fewer employees and average annual wages of less than $25,000. The credit phases-out as firm size and average wage increases. Tax-exempt small businesses meeting these requirements are eligible for tax credits of up to 25 percent of the employer’s contribution toward the employee’s health insurance premium.
Phase II: For tax years 2014 and later, for eligible small businesses that purchase coverage through the state exchange, it provides a tax credit of up to 50 percent of the employer’s contribution toward the employee’s health insurance premium if the employer contributes at least 50 percent of the total premium cost. The credit will be available for two years. The full credit will be available to employers with 10 or fewer employees and average annual wages of less than $25,000. The credit phases-out as firm size and average wage increases. Tax-exempt small businesses meeting these requirements are eligible for tax credits of up to 35 percent of the employer’s contribution toward the employee’s health insurance premium.
Through Jan. 1, 2014, the program creates a temporary reinsurance program for employers providing health insurance coverage to retirees over age 55 who are not eligible for Medicare. Program will reimburse employers or insurers for 80 percent of retiree claims between $15,000 and $90,000. Payments from the reinsurance program will be used to lower the costs for enrollees in the employer plan. $5 billion will be appropriated to finance the program.
Tax Changes Related to Health Insurance
Tax changes that have already been implemented include:
- Exclude the costs for over-the-counter drugs not prescribed by a doctor from being reimbursed through a Health Reimbursement Account (HRA) or health Flexible Savings Account (FSA) and from being reimbursed on a tax-free basis through a Health Savings Account (HSA) or Archer Medical Savings Account.
- Increase the tax on distributions from an HSA or an Archer MSA that are not used for qualified medical expenses to 20 percent (from 10 percent for HSAs and from 15 percent for Archer MSAs) of the disbursed amount.
Features in the health-care law that will be implemented Jan. 1, 2013, include:
- Limit the amount of contributions to a FSA for medical expenses to $2,500 per year increased annually by the cost of living adjustment.
- Increase the threshold for the itemized deduction for unreimbursed medical expenses from 7.5 percent of adjusted gross income to 10 percent of adjusted gross income for regular tax purposes; waive the increase for individuals age 65 and older for tax years 2013 through 2016.
- Increase the Medicare Part A tax rate on wages by 0.9 percent (from 1.45 percent to 2.35 percent) on earnings over $200,000 for individual taxpayers and $250,000 for married couples filing jointly and impose a 3.8 percent tax on unearned income for higher-income taxpayers.
- Impose an excise tax on insurers of employer-sponsored health plans with aggregate values that exceed $10,200 for individual coverage and $27,500 for family coverage.
- Eliminate the tax deduction for employers who receive Medicare Part D retiree drug subsidy payments.
New annual fees to be imposed on the pharmaceutical manufacturing sector:
- $2.8 billion in 2012-2013
- $3.0 billion in 2014-2016
- $4.0 billion in 2017
- $4.1 billion in 2018
- $2.8 billion in 2019 and later
Annual fee to be imposed on the health insurance sector:
- $8 billion in 2014
- $11.3 billion in 2015-2016
- $13.9 billion in 2017
- $14.3 billion in 2018
For subsequent years, the fee shall be the amount from the previous year increased by the rate of premium growth.