In a historic decision, the U.S. Supreme Court has upheld virtually all of the Affordable Care Act, the massive health care law enacted in 2010. Now that the dust has settled, what’s in store for individuals and small-business owners? Here’s a roundup of several key provisions.
Individual mandate: Beginning in 2014, individuals are generally required to obtain health insurance coverage. Otherwise, they must pay an annual nondeductible tax penalty that will be gradually phased in over a three-year period. By 2016, the penalty will be the greater of $695 per person (up to a maximum of three times that amount per family) or 2.5% of household income. After 2016, the figures will be indexed for inflation. Exemptions are available for certain low-income taxpayers.
Employer mandate: Beginning in 2014, if an employer with 50 or more employees does not provide minimal essential coverage to an eligible employee, it may be assessed a penalty of $2,000 per full-time employee (excluding the first 30 employees). A qualified small business may use a special tax credit to offset the cost of employer-provided coverage.
Health insurance exchanges: Beginning in 2014, state-based American Health Benefit Exchanges and Small Business Health Options Program (SHOP) Exchanges will offer coverage to individuals and small businesses with up to 100 employees. After 2016, states may permit businesses with more than 100 employees to purchase coverage in the SHOP Exchange.
Premium assistance credits: Beginning in 2014, premium credits will be available to certain low-income people. Eligibility for this refundable tax credit will be based on household income in the tax year ending two years before the enrollment period. The credit is generally available to taxpayers with a household income between 133% and 400% of the federal poverty level.
Benefit designs: Beginning in 2014, an essential health benefits package is established that provides a comprehensive set of services, covers at least 60% of the actuarial value of the covered benefits, limits annual cost-sharing and is not more extensive than the typical employer plan. All qualified health benefits plans (except grandfathered plans) are required to offer at least an essential health benefits package.
Dollar limits: Beginning in 2014, individual and group health plans are prohibited from placing annual limits on the dollar value of coverage. Prior to 2014, plans may only impose annual limits on coverage as determined by the U.S. Treasury Department.
Medicare surtaxes: Beginning in 2013, certain high-income taxpayers may be liable for one or two new Medicare surtaxes.
- A 3.8% tax on the lesser of net investment income or the amount by which modified adjusted gross income (MAGI) exceeds $250,000 ($200,000 for single filers). Net investment income includes interest, dividends, royalties, rents, gains from dispositions of property and passive activity income, but not tax-free interest and distributions from qualified retirement plans and IRAs.
- A 0.9% tax on earned income above $250,000 ($200,000 for single filers).
Health care FSAs: Beginning in 2013, annual contributions to a flexible spending account (FSA) used to pay qualified medical expenses are capped at $2,500. After 2013, the cap will be adjusted for inflation.
Medical deductions: Currently, unreimbursed medical expenses are deductible only in excess of 7.5% of adjusted gross income (AGI). Beginning in 2013, the threshold increases to 10% of AGI. Exception: Individuals (and spouses) who are age 65 or older are temporarily exempt from this increase from 2013 through 2016.
Preexisting conditions: Children younger than age 19 with preexisting conditions can no longer be denied access to their parents’ health plan nor can insurers exclude treatments for these children. Beginning in 2014, this expanded coverage for preexisting medical conditions is extended to adults.
Prescription drugs: Changes in Medicare Part D will gradually close the “doughnut hole” for prescription drug coverage by 2020.
Finally, be aware that there are numerous other provisions in the new health care legislation that are likely to affect you, your family and your business. Obtain guidance from your professional advisers.