Given the historic nature of the health care reform legislation, we should not be surprised that all the details will not be worked out for awhile. As part of what became a two-part process, the president signed into law a reconciliation bill, formally known as the Health Care and Education Affordability Reconciliation Act. The provisions of the first health care bill that actually passed Congress at the end of March are a duplicate of those approved by the Senate in December. Here are the key elements:
Small Business Owners
- Beginning in 2014, businesses with more than 50 employees will be required to either offer workers health care coverage or pay a penalty of $750 per worker per year. If the reconciliation bill is approved, the penalty for offering no coverage would increase to $2,000 per employee. The coverage offered must meet certain basic criteria - a specific set of services and cover 60 percent of employee health care costs - or employers will be further penalized.
- By no later than 2014, states are required to set up Small Business Health Options Programs (SHOP) exchanges where small businesses will be able to pool together to purchase health insurance. Businesses with 100 or fewer employees are considered to be small businesses - though the states will be able to limit the insurance pool to companies with 50 or fewer employees through 2016. This provision could change to include part-time employees, with the net result of including more small business enterprises in the pool.
- Until the SHOP exchanges are up and running, enterprises with 10 or fewer full-time employees earning on average less than $25, 000 will be eligible for a tax credit of 35 percent of health insurance costs. Partial tax credits will be available to businesses employing 11 to 25 full-time workers with average wages of $50,000 or less. The tax credit program will increase to 50 percent of costs for the first two years that a company buys insurance through its state exchange.
- Plans that cost more than $10,200 for individuals ($27,500 for family coverage) - sometimes referred to as Cadillac plans - will be subject to a 40 percent tax on the amount that exceeds the limit. Although the tax would be paid by the insurers, the cost would probably be passed on to the plan holders in the form of higher premiums. The amendments pending a vote in the Senate would delay the imposition of this tax until 2018 and restrict its use to the most expensive health care plans.
- Effective immediately, insurers are banned from setting lifetime limits on coverage and on rescission (the practice of canceling policies already issued) except when fraud is involved. By 2014, insurers will have to meet more conditions and will no longer be able to set rates or exclude coverage based on pre-existing medical conditions, though they will have the opportunity to vary premiums based on geographic location, age and use of tobacco products.
As noted, some of the above might change, but pundits expect the launch of SHOP exchanges to take place soon - though states probably wonÂÂ’t implement until the 2014 deadline.
From the IndividualÂÂ’s Standpoint
The most immediate benefits will accrue to people with pre-existing conditions, who will be able to get coverage through temporary pools within 90 days. The reform also offers relief to people whom:
- Currently have a co-pay for some preventative services;
- Are subject to lifetime limits on their policies;
- Have waited a long time for coverage (reform bill won't allow insurers to exceed waiting periods of 90 days).
- College students will be eligible to stay on their parentsÂÂ’ insurance plans until they reach age 26.
- Taxpayers who earn more than $200,000 individually ($250,000 as a married couple) will be paying more in Medicare taxes when the rate increases to 2.35 percent from 1.45 percent. If the reconciliation bill before the Senate passes, this tax will also be applied to unearned income.
- Individuals who donÂÂ’t want to carry health insurance will be hit with tax penalties.
- Seniors who have Medicare Part D (drug) coverage will see the overall price they pay for prescription medicines decline.
Obviously, the above is a bare bones summary of health care reform. The cost, the schedule for implementation and the tax consequences of the health care bill (and of its sibling, the reconciliation bill) are complicated. Consult your professional tax and financial advisors to discuss how the legislation will affect your specific situation.