Last month President Obama signed the Patient Protection and Affordable Care Act of 2010, a.k.a. the Healthcare Reform Act. This has received a large sum of coverage by the media and there is a huge spectrum of opinions on this legislation.
My goal in the next two columns is to break down some of the details that you maybe haven’t heard and show you how it could impact your business or your employer’s business.
The goal of this act is to increase the number of insured U.S. citizens and legal residents. This is accomplished by encouraging and possibly penalizing employers that don’t choose to cover eligible individuals.
The new law first and foremost requires individuals to have a minimum level of health insurance. The act provides refundable tax credits that will help to make insurance more affordable. It will also encourage individuals by imposing penalties for not purchasing coverage.
Finally, the law creates state-based health insurance exchanges for both individuals and, in later years, for businesses to hopefully help to reduce overall insurance costs by promoting competition by insurance providers by creating pools that help spread out the financial risks.
It is important to note that there is already talk that some states are looking at taking legal action against having to setup and operate these exchanges.
For the current year, here is what happens:
· Small Employer Tax Credit — An employer with less than 25 employees can receive a tax credit of 35 percent of the premiums paid. There is also a requirement that the under-25 employees have to average under $50,000 in annual salary per employee. The credit is on a sliding scale so depending on the number of employees and average wage your business may not receive the full 35 percent credit.
· Children under the age of 27 can still be on your health insurance plan if not covered by an employer sponsored plan.
· No lifetime caps on dollar value of health benefits.
· No pre-existing condition exclusions for children.
For 2011, the following occurs:
· As an employer you will have to include on your employee’s W-2 forms the value of the employer sponsored coverage.
· The penalty for HAS &MSA withdrawals not used for medical purposes increases to 20 percent.
· Allows employers with fewer than 100 employees to establish simple cafeteria plans that will not include some of the typical nondiscrimination rules if the plan meets certain eligibility rules.
· Over the counter medications will no longer be eligible for the tax benefits from FSA, HRA, HAS, &MSA unless there is a prescribed medication from a doctor.
· Medicare recipients will start receiving a 50 percent discount on brand name drugs while in the “doughnut hole,” the gap in coverage once the person on Medicare has passed $2,700 in costs and up to $6,154.
For 2012:
The only real activity is expanded 1099 form reporting. This one, to me, is a real tricky one.
All taxpayers will be required to file 1099 forms to individuals and corporations. The corporations are the new part and this is huge in my view as any entity that is paid over $600 will have to be mailed a 1099 form by Jan. 31.
The form has been around for a long time but this will greatly increase the record-keeping and compliance for many businesses. It is also my guess that it is the first new attempt at trying to capture some of the underground cash economy that is out there. The IRS can disallow a business deduction that doesn’t have the appropriate 1099 form so that puts the business at a point that says nearly every vendor that was paid over $600 had best be sent a 1099 form and a copy reported to the IRS.
As I always tell myself 2012 sounds like a long time from now but it will be here soon and with sky high government deficits I don’t see this requirement changing. Next month I will pick up at 2013 and look at some of the next stages that the current law will put into focus for business owners.
I truly believe that there will be adjustments and changes to this law but as part of your planning this is a subject that you need to be discussing with your advisors and your insurance providers as to how they are changing their options to benefit themselves and you their customers.
Next Month: Who pays for this — and how?
David Rumsey is the owner of Pettis Rumsey Inc., a Marysville accounting firm that works with small business owners to increase financial performance, tax planning and preparation. He can be reached at 360-659-8502 or at david@pettisrumseycpa.com.
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