The Patient Protection and Affordable Care Act (ACA) has been the subject of speculation and uncertainty since it was passed by Congress in 2010.
Nonetheless, the law’s provisions have been enacted according to a specified timetable, and after surviving legal and political challenges, the ACA enters a pivotal phase of implementation in 2013. This may be an appropriate time to consider how the ACA could impact your situation as a taxpayer and a consumer.
New Taxes in 2013
Some of the most immediate issues for high-income Americans are two taxes effective this year that are intended to help pay for the expansion of health coverage and other benefits under the law:
- An additional 0.9% Medicare payroll tax on earned income (wages/salaries) exceeding $200,000 ($250,000 for joint filers).
- A 3.8% Medicare unearned income tax on net investment income for people with adjusted gross incomes (AGIs) exceeding $200,000 ($250,000 for joint filers). Unearned income includes capital gains, dividends, interest, royalties, rents, and passive income.
In addition to these Medicare taxes, two potential tax reductions could affect taxpayers regardless of income level:
- The threshold for deducting unreimbursed, qualified medical expenses increases from 7.5% of AGI to 10% in 2013. However, this increase is postponed until 2017 for individuals aged 65 and older.
- Flexible Spending Account (FSA) health-care contributions are capped at $2,500 in 2013, with adjustments for inflation in future years. Previously, FSA contributions were subject only to employer plan maximums.
Employer Coverage
Beginning in 2014, employers with 50 or more full-time employees will be required to provide minimum essential health coverage or face an annual penalty. Not surprisingly, many employers are now assessing their options. In a recent survey, 84% of U.S. employers reported that they are very likely or definitely will continue to provide health insurance to full-time employees in 2014. Only 1% indicate that they will not provide health coverage. 1
A temporary, three-year assessment to help fund the law’s requirements to cover pre-existing conditions may also impact employers. This fee, which will be assessed on all “major medical” insurance policies (employer-based and individual policies), begins at $63 per capita in 2014, drops to about $40 in 2015, and phases out completely by 2017. Because most large employers pay employee health insurance in advance, they are likely to owe this fee directly and could pass all or part of the cost to their employees. 2
Insurance Exchanges
In 2014, individuals and small businesses (with up to 100 employees) will be able to purchase health insurance through exchanges. Some large companies that do not want to provide employee health coverage might be willing to pay the required penalties and allow their employees to obtain individual coverage through the exchanges.
As of December 14, 2012 — the deadline for submitting plans for state-based insurance exchanges to the Department of Health and Human Services (HHS) — 18 states and the District of Columbia had declared that they will establish a state-based health exchange. 3 Six of these have had their plans conditionally approved. 4
Of the remaining states, seven plan to participate in federal-state partnership exchanges, and 25 states would default to an exchange administered by the federal government. 5
HHS regulations for health insurance plans address cost-sharing limits and the valuation of coverage. Plans will be standardized based on the percentage of expected health-care costs they will cover: bronze (which covers 60% of the actuarial value of expenses), silver (70%), gold (80%), and platinum (90%). 6
Applications for the exchanges will begin in October 2013, with coverage beginning January 2014. If you think you might obtain insurance through an exchange, it might be wise to monitor developments in your state.
Meanwhile, you might continue staying abreast of any developments with your employer coverage and include any additional taxes in your calculations for 2013.
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JON TEN HAAGEN, CFP, RPC
Founder and CEO
Ten Haagen Financial Group
191 New York Avenue
Huntington, NY 11743
631-425-1966
516-658-2827
jonlth@tenhaagen.com
www.tenhaagen.com
1) Employee Benefit News , December 10, 2012
2) Huffington Post , December 10, 2012
3, 5) Kaiser Family Foundation, 2012
4) HealthCare.gov, December 10, 2012
6) Employee Benefit Adviser , December 7, 2012
The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. Copyright © 2013 Emerald Connect, Inc.
