On March 23, 2010, President Obama signed the “Patient Protection and Affordable Care Act” (H.R. 3590) (the “Patient Protection Act”) and on March 30, 2010, President Obama signed the “Health Care and Education Reconciliation Act of 2010” (H.R. 4872) (the “Reconciliation Act”) into law. The Reconciliation Act incorporated modifications to the Patient Protection Act that were approved by both the House and the Senate. The Congressional Budget Office estimated that the health care reform legislation would provide coverage to 97% of Americans at a cost of $940 billion over the next decade. Due to higher taxes and fees, and Medicare payment cuts, the health care reform legislation is expected to reduce the budget deficit by $138 billion over 10 years.
While the Patient Protection Act and the Reconciliation Act do not directly impact estate planning issues, there are several provisions of this legislation that may be of interest to individuals, including the following:
- Employers that do not provide minimum health coverage will be subject to an additional tax. This penalty applies to employers with more than 50 employees.
- Beginning January 1, 2011 for most employer plans, adult children up to age 26 may, even if they are not dependents, stay on their parents’ policies.
- Pre-existing condition exclusions are eliminated for children on existing health plans effective for the first plan year after enactment (typically January 1, 2011). Exclusions for pre-existing conditions for all other individuals will be eliminated in 2014.
- Beginning in 2014, “grandfathered plans” (that is, certain group health plans in existence prior to the health care reform legislation) must eliminate lifetime and annual limits.
- Individuals will be required to maintain minimum essential coverage or pay a non-deductible penalty. Employees will be eligible for premium tax credits when employer-provided insurance costs 9.5% or more of their income or the employer’s share of the cost of benefits is less than 60%.
- Coverage subsidies will also be available for individuals who can’t afford minimum affordable coverage based on federal poverty level (“FPL”). For example, an individual with an income between $14,000 and $43,000 would qualify for the subsidy, and a family of four with a household income between $29,327 (133% of FPL) and $88,000 (400% of FPL) would qualify for the subsidy.
- Beginning in 2018, there will be a 40% excise tax on high-cost health plans if annual premium payments exceed $10,200 for individuals and $27,500 for family coverage (indexed for inflation).
- Over-the-counter medicines or drugs will no longer be eligible for reimbursement under a health flexible spending account (“health FSA”), health reimbursement account (“HRA”) or a health savings account (“HSA”), effective for tax years beginning on or after January 1, 2011. In addition, contributions to health FSAs will be limited to $2,500 per year beginning in 2013 (indexed for inflation). Any distributions from HSAs will also be subject to a penalty of 20%, effective for distributions after 2010.
In addition, the following taxes and fees are included in the health care reform legislation:
- Beginning January 1, 2013, employees must pay an additional 0.9% (from 1.45 to 2.35%) Medicare Hospital Insurance payroll tax on wages in excess of $200,000 (single) and $250,000 (family). This provision also applies to self-employed individuals.
- Higher-income taxpayers (in excess of $200,000 (single) and $250,000 (family)) must also pay a 3.8% tax on unearned income, beginning in 2013. Net investment income includes interest, dividends, royalties, rents, gross income from passive trade or business activities and capital gains.
- The law imposes a 10% excise tax on indoor tanning services beginning July 1, 2010.
- The threshold for itemized deductions for unreimbursed medical expenses will rise in 2013 from 7.5% of adjusted gross income (“AGI”) to 10% of AGI (except for certain individuals age 65 and older for tax years 2013 to 2016).
If you would like additional information about other provisions of the health care reform legislation, click here to be linked to our general client alerts.