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).

A Medicaid compliant annuity may help older clients qualify for Medicaid when the value of their assets exceeds the Medicaid resource limit.  Purchase of a Medicaid compliant annuity can reduce the purchaser’s pool of assets that are countable for Medicaid purposes below the threshold for Medicaid eligibility, allowing the purchaser to qualify for Medicaid.

Extreme caution is necessary when using Medicaid compliant annuities. The states frequently challenge Medicaid compliant annuities, claiming—wrongly—that the annuities are countable assets and rejecting the purchaser’s Medicaid application on the grounds that the applicant’s assets are too substantial to qualify for Medicaid. Although states may still challenge the use of Medicaid compliant annuities, a  few recent cases have clarified the planning potential of the annuities, finding in favor of Medicaid applicants who use compliant annuities to reduce their countable assets.   Read this complete article 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).

For in-depth analysis of the topic of Roth IRAs, see Advisor’s Main Library Section 24 C—MEDICAID Planning

We invite your questions and comments by posting them in our blog AdvisorFYI, or by calling the Panel of Experts.