The Congressional Research Service last week released a publication describing the employer healthcare mandate and penalties for large employers under the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010. Although penalties under the Health Care Act will not be applicable until 2014, the Act brings about a sea of change in the employer’ role in employee health insurance that requires significant present preparation.

Contrary to popular miscomprehensions about the Act, it does not mandate that employers provide their employees with health insurance; however, the Act does incentivize large employers to do so by penalizing them if their employees are not covered to a minimum level by employer-provided health insurance.  Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

Why is this Topic Important to Wealth Managers? Discusses the repeal of the health care legislation. Also, presents discussion about budgetary concerns regarding repeal.

One of the most exciting aspects of working in the wealth management industry is the need to adapt to constant change.  Over the past 12 months, the Legislator has created a fair amount of change that has been the topic of many discussions here at Advanced Markets FX and FYI.  Amusingly enough, we now examine how some of that could change yet again, starting with the Health Care Repeal.

Recently the House of Representatives passed the Repealing the Job-Killing Health Care Law Act, as introduced on January 5, 2011, which is now up for a Senate vote. That bill would repeal the Patient Protection and Affordable Care Act (PPACA) [1] and the provisions of the Health Care and Education Reconciliation Act of 2010 [2] that are related to health care.  Both of those laws were enacted in March 2010, and have been discussed in depth throughout the past year.

Among other things, PPACA and the provisions of the Reconciliation Act that are related to health care will do the following: establish a mandate for most legal residents of the United States to obtain health insurance; create insurance exchanges through which certain individuals and families will receive federal subsidies to substantially reduce the cost of purchasing health insurance coverage; expand eligibility for Medicaid; reduce the growth of Medicare’s payment rates for most services (relative to the growth rates projected under prior law); impose an excise tax on certain health insurance plans with relatively high premiums; impose certain taxes on individuals and families with relatively high incomes; and make various other changes to the federal tax code, Medicare, Medicaid, and other programs.

The Congressional Budget Office (CBO) has reviewed H.R. 2, and the financial affects its passage could have. [3] Although the findings are initial, the CBO first noted that the health care legislation contained a set of provisions designed to expand health insurance coverage, which CBO and Joint Committee on Taxation estimated would have a gross cost of about $930 billion and a net cost (after accounting for certain related changes in outlays and revenues) of about $780 billion over the 2012–2019 period. Repealing that legislation would eliminate such costs.

Secondly, the PPACA and the Reconciliation Act also included a number of provisions to reduce federal outlays and to increase federal revenues (mostly by increasing the Hospital Insurance payroll tax and imposing fees on certain manufacturers and insurers); in March, CBO and JCT estimated that those provisions unrelated to insurance coverage would, on balance, reduce direct spending by about $500 billion and increase revenues by about $410 billion over the

2012–2019 period.  The main variance the CBO estimates for the 2012-2019 period is $130 billion which is a result of projected increases of about $520 billion in revenues and about $390 billion in outlays.

Further, CBO’s estimates project repeal of the health care legislation would probably reduce the appropriations needed by the Internal Revenue Service by between $5 billion and $10 billion over 10 years. Similar savings would accrue to the Department of Health and Human Services.

Tomorrow’s blogticle will discuss 2011 market opportunities for wealth managers.

We invite your questions and comments by posting them below, or by calling the Panel of Experts.

[2] Public Law 111-152.

[3] Douglas W. Elmendor, Director.  Congressional Budget Office.  Letter to the House Majority Leader.   http://www.cbo.gov/ftpdocs/120xx/doc12040/01-06-PPACA_Repeal.pdf.  January 6, 2011.  Last accessed January 22, 2010.

Why is this Topic Important to Wealth Managers? Discusses certain provisions applicable to wealth managers of the National Health Care Legislation that was signed into law in 2010.

The Patient Protection and Affordable Care Act, [1] and the Health Care and Education Reconciliation Act of 2010, [2] are generally known as the national health care legislation.  The new laws created a number of changes in the health care insurance system, in general.  These changes will be discussed throughout the week, as presented below.

Under the new law, each individual is required to have “minimum essential coverage” for each month of the year starting in 2014. “Minimum essential coverage” means whichever; a government sponsored program such as Medicare, Medicaid, and TRICARE; an employer sponsored plan; plans in the individual market; and grandfathered health care plans.[3]

For those individuals who choose not to obtain minimum essential coverage, imposed is a penalty to be included in the taxpayer’s annual return.  The penalty applies to each month where the individual is not covered equal to an amount of 1/12 of the average cost of “bronze” level coverage,[4] or, the greater of an annual set dollar amount, which is pegged at $695 for taxable years 2016 and beyond, or a set percentage of the taxpayer’s household income, currently 2.5 percent beginning after 2016.[5] (The Legislation includes a phase in schedule for both the flat dollar amount and the percentage of income. The flat dollar amount is $95 for 2014, $325 for 2015. The percentage of household income is 1 percent for 2014 and 2 percent for 2015.)

Generally, most individuals are required to maintain minimum essential coverage. Few exceptions nevertheless apply, which include, certain low-income individuals who cannot afford coverage, members of Indian tribes, and individuals who suffer hardship.  Further, exempt from the coverage requirements are individuals who object to health care coverage on religious grounds, individuals not lawfully present in the United States, and individuals who are incarcerated. [6]

As was discussed in an earlier blog, the new law created additional employment taxes to pay for additional Medicare coverage.

First, the new tax adds an additional .09% on earned income for those earning more than $200,000 or $250,000 if filing jointly with regards to Medicare.  The total employee contribution for those affected by the surcharge is 2.35%, while the employer’s tax will remain at 1.45%. [7]

Second, the laws created a hefty 3.8% tax on net investment income for those with AGIs (Adjusted Gross Income) over the $200,000/250,000 limit.  Net investment income in this context generally means interest, annuities, dividends, royalties, rents, and capital gains. [8]

For a detailed discussion on the Medicare revenue provisions see generally, Advisorfyi-The National Health Care Bill Invoice.

Tomorrow’s blogticle will continue the discussion on the health care legislation.

We invite your questions and comments by posting them below, or by calling the Panel of Experts.

[2] Pub. L. No. 111-152.

[3] The Patient Protection and Affordable Care Act, Pub. L. No. 111-148, Section 5000A (f) (2010).

[4] The Patient Protection and Affordable Care Act, Pub. L. No. 111-148, Section 1302 (2010).

[5] The Patient Protection and Affordable Care Act, Pub. L. No. 111-148, Section 10106 (2010).

[6] The Patient Protection and Affordable Care Act, Pub. L. No. 111-148.  Section 1501, as modified by section 10106.  (2010).

[7] Patient Care Patient Protection and Affordable Care Act, Pub. L. No. 111-148, Section 9015, as amended by the Health Care and Education Reconciliation Act, Pub. L. No. 111-152, Section 1402 (2010).

[8] Health Care and Education Reconciliation Act, Pub. L. No. 111-152, Section 1402 (2010).

Why is this Topic Important to Wealth Managers? Discusses the Small Business Tax Credit as enacted by the Health Care Legislation.  Provides an overview of important information concerning small businesses and the use of the tax credit.

During 2010, President Obama realized his goal of providing health care coverage to all Americans when Congress passed the Patient Protection and Affordable Care Act, [1] and the Health Care and Education Reconciliation Act of 2010.[2]

Under the new health care legislation many new changes will affect taxpayers beginning last year.  This week’s blogticles are dedicated to the discussion of the health care legislation and the impact it is projected to have.  We begin with a discussion of the Small Business Tax Credit.

Under the new law, the Small Business Tax Credit allows qualified small employers to elect, beginning in 2010 a tax credit for some percentage of their employee health care coverage expenses.  Generally, a “qualified small employer” is an employer who has the equivalent of 25 full-time workers or less (e.g., a firm with fewer than 50 half-time workers would be eligible), pay average annual wages below $50,000, and cover at least 50 percent of the cost of health care coverage for their workers.[3]

Further, the tax credit will cover up to 35 percent of the premiums a small business pays to cover its workers until 2014, when the rate will increase to 50 percent.  Nevertheless, the credit has phase out provisions which gradually reduce the credit amount for businesses with average wages between $25,000 and $50,000 and for businesses with the equivalent of between 10 and 25 full-time workers.

The United States Department of Health and Human Services Estimates that up to 4 million small businesses are eligible for tax credits to “help them provide insurance benefits to their workers.” [4]

The incentive behind the tax credit appears to be two-fold.  First, The Congressional Budget Office estimates that the tax credit will save small businesses $40 billion by 2019.  Secondly, small businesses face “extraordinary challenges in providing affordable health coverage to employees, “including premiums that are 18 percent higher on average than large businesses pay for the same coverage.” [5]

Estimates also show that small businesses have 3 to 4 times as much administrative cost built into premiums than as compared to the large group market.  In addition, small businesses are also considered to be at a disadvantage in negotiating with insurance companies because they lack significant bargaining power. [6]

For detailed guidance on the Small Business Tax Credit see Internal Revenue Service Notice 2010-44. [7] The guidance clarifies, in part, that small businesses can receive the credit not only for traditional health insurance coverage but also for add-on dental, vision, and other limited-scope coverage.

Tomorrow’s blogticle will continue the discussion on the health care legislation.

We invite your questions and comments by posting them below, or by calling the Panel of Experts.

[2] Pub. L. No. 111-152.

[3] See generally, Patient Protection and Affordable Care Act Sec. 1421, as modified by section 10105.

[4] http://www.healthcare.gov/law/about/order/byyear.html.  Last Accessed 1/2/2011.

[5] Id.

[6] Administration Releases New Guidance On Small Business Health Care Tax Credit.  http://www.whitehouse.gov/sites/default/files/rss_viewer/health_reform_small_business_guidance.pdf.  May 17, 2010.  Last Accessed 1/2/2011.

[7] Internal Revenue Service.  Section 45R – Tax Credit for Employee Health Insurance Expenses of Small Employers Notice 2010-4.  http://www.irs.gov/pub/irs-drop/n-10-44.pdf.  Last Accessed 1/2/2011.