The Patient Protection & Affordable Care Act (PPACA or Affordable Care Act, commonly known as “Obamacare”) is a complex and far-reaching statute. It includes provisions relating to consumers, health insurers, healthcare companies, employers and taxpayers. While a few provisions (mainly related to patient protection) took effect in 2010, most of the law comes into force in 2014. What follows is a brief summary of the provisions that I believe will affect your income or your tax return, or with which I can assist.
HEALTH INSURANCE COVERAGE
If you have health insurance through an employer, you may not see much change, although you’ve been able to include your under-26 non-dependent children for a couple of years. Lifetime dollar limits and preventive care copays have been eliminated. PPACA sets minimum standards for health insurance plans offered by employers, and if your employer has 50 or more employees, they will be fined if they don’t offer affordable options. (Small employers have tax credits available.)
If you have pre-existing conditions and have been denied coverage, you can already get coverage in a high risk pool program. In 2014, they won’t be able to deny you coverage or set your price based upon it.
If you don’t have access to employer coverage or Medicare:
Starting in 2014, you will be eligible for Medicaid OR able to purchase health insurance on an “exchange,” which will be online at finder.healthcare.gov later this year. If you cannot afford the premiums, you will probably* have subsidies available:
- A single adult with income under $15,000 should be eligible for the expanded Medicaid program, although this coverage is complicated by state decisions yet to be announced. A family of 4 will be Medicaid eligible with income below $32,000.
- Subsidies for purchasing insurance will be available up to 400% of the federal poverty line — $45,000 for singles, and $92,000 for a family of 4. These are sliding scale subsidies to reduce your premiums to a high of 3% (at the low income end) to 9.5% of family income (at the top), and your annual out-of-pocket maximum to the 11% to 16% range.
Penalties will be assessed if you don’t carry insurance, but they’re pretty modest — $95 in 2014, increasing to $695 in 2016 — and you’ll be exempt if your only insurance options (after subsidy) exceed 8% of your income. But you really want insurance if there’s a way to swing it.
* This overview is of the federal provisions. A number of provisions involve or require state action to expand Medicaid (with federal funding) or set up exchanges. If your state of residence decides not to participate, you may not have access to Medicaid or potentially to subsidies, depending upon extremely complicated rules.
TAXES & TAX CREDITS
If you’re an employer, you are required to provide insurance coverage if you have 50 or more employees, but there are tax credits to assist you in paying your portion.
If you are “high income,” defined as $200,000 for a single person, or $250,000 for a married couple, you will be subject to new taxes to finance the system:
- A new Medicare tax on wages – an additional 0.9%, increasing your portion to 1.8%. The potential problem here is that it will be calculated on your Federal Form 1040 tax return and may not be withheld; you should discuss that with your tax professional now.
- A new Medicare tax on investment income – 3.8% of net investment income, including interest, dividends and capital gains, to the extent that your income exceeds those $200,000/$250,000 thresholds.
The threshold for medical expense deductions on Schedule A will be increased to 10% of income in 2014, except for seniors. Beginning in 2013, flexible spending accounts for out-of-pocket expenses are also capped at $2,500.
Beginning with your 2014 tax return, you will have to prove minimum health insurance coverage with your filing, or you’ll be paying the fine with your taxes. (But no tax penalties can be assessed on this amount.) Your insurance provider will supply you (and IRS) with an “information return” similar to a 1099 for this purpose, and you’ll need to give it to your tax professional.
The subsidy for health insurance obtained through an exchange will be calculated through the tax return, but paid directly to your insurer.
I’m always available to help puzzle out individual situations, and am planning to offer direct assistance with the “Exchanges” come fall. Please feel free to call, as always.