Perhaps you’re tired of hearing about health care reform. You know it passed amid plenty of controversy, but do you understand what this reform means to investors or employees? While the legislation is complicated and not all of its effects are yet understood, I want to highlight some key elements that might affect you.
Mandating Coverage in 2014
The new law requires that every American buy health insurance or pay an income tax penalty beginning in 2014. The interpretation is that enrolling in an employer group health plan will satisfy the individual mandate. Employers with at least 50 full-time employees will also be required to offer health insurance starting in 2014. Employers not offering any coverage or offering coverage that is considered “unaffordable” to the employee will face a $2,000 per employee penalty. To help meet these mandates, states will be required to create Health Insurance Exchanges where individuals and small employers can purchase health insurance.
Big Changes for Employers
The law includes a number of new requirements for the health plans offered by employers. Beginning with the 2011 plan year, employer health plans must offer coverage to adult children up to age 26, may not impose lifetime limits on the dollar value of benefits and may not impose preexisting condition exclusions on children under 19. By 2014, employer group health plans will be prohibited from preexisting condition exclusions for all enrollees and from imposing annual limits for essential benefits, and will be required to auto enroll new full-time employees in health care coverage. Undoubtedly, these changes will mean higher costs for employers, forcing companies to closely examine the size and compensation of their workforce.
One way these policies will be funded is through new taxes and tax increases. Starting in 2013, taxpayers with earned income above $200,000 (single return) or $250,000 (joint return) will be subject to an additional 0.9% Medicare Hospital Insurance tax (i.e., rising from 1.45% to 2.35%) on wages in excess of those thresholds. Additionally, those same taxpayers will be subject to a new 3.8% Medicare surtax on the lesser of net investment income or income in excess of the $200,000/$250,000 threshold. High-income taxpayers will need to closely examine their tax situation in the next few years leading up to the implementation of these higher taxes.
In addition to Medicare taxes, some other tax provisions will change in 2013. Taxpayers claiming an itemized income tax deduction for medical expenses will be able to deduct only the portion of such expenses in excess of 10% of their adjusted gross income, up from the current level of 7.5%. This provision is deferred to 2017 for those age 65 and older. Additionally, the law will impose an excise tax of 2.3% on the sale of medical devices by manufacturers, with certain exceptions, starting in 2013.
While consumers and individual taxpayers aren’t the only group shouldering the cost of health care reform, these changes highlight how important financial and tax planning will become in the next few years. Working with a financial planner and CPA will be essential.
Expect Higher Insurance Premiums
This law does not contain aggressive policies to reduce health care costs throughout the industry. It stands to reason that, if health insurers are required to expand and extend coverage without a decrease in health care costs, higher premiums can be expected. Currently some people pay lower premiums by choosing plans with a high deductible, but the legislation will place restrictions on high deductible policies. Employers and individuals wanting to lower premiums by selecting high-deductible plans might consider doing so now, before they become unavailable.