Health Care Reform Act
recently enacted health care reform legislation includes both historic
changes to the health care industry, as well as, some tax related
provisions . This legislation is complex and includes many changes for
both individuals and businesses. The following is a summary by year of
some of the major changes (for a printable copy of this article click
for plan years beginning after 9/23/2010, plans that provide dependent
coverage must extend coverage to adult children (married or unmarried)
up to age 26. Certain limited exceptions for grandfathered
• For plan years beginning after 9/23/2010,
pre-existing condition exclusions for children under 19 are
• For plan years beginning after 9/23/2010,
preventative care must be covered with no cost-sharing if provided
through an in-network provider. Grandfathered plans are not required
to comply with this requirement.
• Provide a
$250 rebate (nontaxable) to Medicare beneficiaries who reach the Part D
coverage gap in 2010 and gradually eliminate the Medicare Part D
coverage gap by 2020.
• Provide tax credits to employers
with no more than 25 employees with average annual wages under $50,000
who provide health insurance for employees. Phase-out between 11 and
25 employees and/or $25,001 and $50,000 average annual wages. Credit
(before phase-out) is equal to 35% of the lesser of: a) total
non-elective contributions made by the employer for qualifying health
coverage, or b) amount employer would have paid if health plan premiums
were equal to the average premium for the small group market in the
state. This credit increases to 50% in 2014. For Non-Profits, the
credit is 25%. Employer must pay at least 50% of the
the costs for over-the-counter drugs not prescribed by a doctor from
being reimbursed through an HRA, FSA, HSA or MSA. This does not apply
to items for medical care, such as crutches or diabetes care.
• Increase the penalty to 20% on nonqualified
distributions from an HSA or an MSA.
Cafeteria Plan - employers with fewer than 100 employees may set up
pre-tax medical expense plans for employees. Contribution requirements
by employers - either Uniform Percentage (not less than 2% of
employees’ compensation) or amount equal to the lesser of 6% of
employees compensation or 2 times the amount of employee contributions.
Employee eligibility limits – must work at least 1,000 hours per
year. May exclude employees under age 21, union employees, nonresident
aliens, and employees with less than one year of
Medicare Tax on Wages - an additional 0.9% tax imposed on wages for
individuals with adjusted gross income over $125,000 if filing married
filing separate, $250,000 if filing married filing joint, and $200,000
for all others.
• Increase Medicare Tax on
Self-employed Income - an additional 0.9% tax imposed on
self-employment income in excess of $125,000 if filing married filing
separately, $250,000 if filing married filing jointly, and $200,000 in
all other cases.
• Form W-2: Employers will be
required to report the value of premiums paid on the employee’s W-2
for Form W-2s due January 2013. This amount is NOT taxable to the
• Expanded Form 1099 reporting of all payments
totaling in excess of $600 to all for-profit companies (begins with
payments in 2012 reportable on Forms 1099 issued in January 2013).
This includes payments for rents, salaries, wages, services, and
amounts in consideration for property, premiums, annuities, and gross
proceeds. Employers need to obtain each payee’s Federal tax
maximum amount reimbursable under a health-care flexible spending
account ("FSA") offered through a cafeteria plan will be
reduced to $2,500.
• Additional 3.8% tax is imposed on
the lesser of (i) unearned income or (ii) modified adjusted gross income
over $125,000 for married filing separate taxpayers, $250,000 for
married filing joint taxpayers, and $200,000 for all others. Unearned
income includes interest, dividends, capital gains, annuities, rents
and passive activity income. It does not include distributions from
retirement plans and tax-exempt interest.
the threshold for the itemized deduction for unreimbursed medical
expenses from 7.5% of AGI to 10% of AGI for regular tax purposes. The
old 7.5% AGI limit is maintained for individuals age 65 and older
• Mandated reporting for large
employers (50 or more full-time employees), beginning June 30, 2013.
These employers will be required to submit a return detailing employee
data, status, and health benefits.
limits on covered medical expenses prohibited for all insurance
• Pre-existing conditions exclusions are prohibited
• Refundable Tax Credit - eligible taxpayers can use
this credit to help cover the cost of health insurance premiums for
individuals and families who purchase health insurance through a state
health benefit exchange. Eligibility for the credit is based on the
individual’s income for the tax year ending two years prior to the
enrollment period. The credit is available for individuals (single or
joint filers) with household incomes up to 400% of the federal poverty
level who do not receive health insurance through an employer.
• Require U.S. citizens and legal residents to have
qualifying health coverage. Penalty phased in between 2014 – 2016.
Penalty maximum $695 for singles or $2,085 families. Exemptions
available. Those below income tax filing limit not subject to
• A nondeductible penalty is assessed on large
employers (50 or more full-time employees) that do not offer coverage
and have at least one full-time employee who receives a premium tax
credit or cost sharing reduction. The excise tax is equal to $2,000
per full-time employee, excluding the first 30 employees from the
assessment. Large employers that offer coverage but have at least one
full-time employee receiving a premium tax credit, will pay the lesser
of $3,000 for each employee receiving a premium credit or $2,000 for
each full-time employee, excluding the first 30 employees from the
assessment. This also requires employers with more than 200 employees
to automatically enroll employees into health insurance plans offered
by the employer. Employees may opt out of coverage.
Tax on high-cost employer-sponsored health coverage - a 40%
non-deductible excise tax will be levied against insurance companies
and plan administrators for any health coverage plan to the extent that
the annual premium exceeds $10,200 for singles, $27,500 for
In addition to the implementation of these new rules, state
health care exchanges will be available to individuals and small groups
to assist in selecting health care coverage and evaluating the various
plans. There will also be federal high risk pool insurance plans for
those who qualify. Finally, there are new measures being developed to
help curb health care costs and make health care insurance industry
more transparent to the consumer.