Why is This Topic Important to Wealth Managers? This blogticle discusses the effect of legislation on the health insurance market. Since the PPA health insurance oversight has become a federal issue. Thus, we discuss a recent report by the GAO which discusses measures states are taking to become “compliant” with the new laws and regulations.

With premiums increasing for private health insurance, questions have been raised about the extent to which increases are justified.

Traditionally, oversight of the private health insurance industry is primarily the responsibility of states under the 10^th Amendment of the Constitution. Nevertheless, in 2010 the Patient Protection and Affordable Care Act provided for the Department of Health and Human Services (HHS) to award grants to assist states in their oversight of premium rates.

A recent study by the Government Accountability Office examined the state insurance premium oversight procedures. The GAO’s report describes (1) states’ practices for overseeing health insurance premium rates in 2010, including the outcomes of premium rate reviews; and (2) changes that states that received HHS rate review grants have begun making to enhance their oversight of premium rates.

The Report (not interestingly enough) found that oversight of health insurance premium rates–primarily reviewing and approving or disapproving rate filings submitted by carriers–varied across most states in 2010.

While nearly all–48 out of 50–of the state officials who responded to GAO’s survey reported that they reviewed rate filings in 2010, the practices reported by state insurance officials varied in terms of the timing of rate filing reviews, the information considered in reviews, and opportunities for consumer involvement in rate reviews.

Specifically, the report found, respondents from 38 states noted all rate filings reviewed were reviewed before the rates took effect, while other respondents reported reviewing at least some rate filings after they went into effect. Survey respondents also varied in the types of information they reported reviewing. While nearly all survey respondents reported reviewing information such as trends in medical costs and services, fewer than half of respondents reported reviewing carrier capital levels compared with state minimums.

Moreover, some survey respondents also reported conducting comprehensive reviews of rate filings, while others reported reviewing little information or conducting cursory reviews. In addition, while 14 survey respondents reported providing consumers with opportunities to be involved in premium rate oversight, such as participation in rate review hearings or public comment periods, most did not.

Finally, the outcomes of states’ reviews of rate filings varied across states in 2010. Specifically, survey respondents from 5 states reported that over 50 percent of the rate filings they reviewed in 2010 were disapproved, withdrawn, or resulted in rates lower than originally proposed, while survey respondents from 19 states reported that these outcomes occurred from their rate reviews less than 10 percent of the time.

Tomorrow’s blog will discuss planning ideas related to advanced markets.

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

Why is this Topic Important to Wealth Managers? This blogticle presents discussion related to the Affordable Care Act with regards to the establishment of state health insurance exchanges. The information is provided to wealth managers to keep them informed on the health insurance law changes which will begin to appear so that they may better prepare clients.

New York Governor Andrew M. Cuomo announced earlier this week that he has submitted a Governor’s program bill that would establish a new Health Benefit Exchange in order to comply with the Affordable Care Act passed by Congress and signed into law by President Barack Obama in 2010.

The Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act are collectively referred to as the Affordable Care Act, and include a number of policies intended to help physicians, hospitals, and other caregivers improve the safety and quality of patient care and make health care more affordable. The idea is by focusing on the needs of patients and linking payments to outcomes, delivery system reforms should help improve the health of individuals and communities and slow national health care cost growth. [1]

New York has made the decision to operate its own exchange, rather than have the federal government operate one for the state, given the complexity and diversity of the insurance market in New York.

“This legislation would fulfill New York’s commitment to the federal government to set up a health benefit exchange that will enhance access to affordable quality health care for all New Yorkers,” Governor Cuomo said. “This is a dynamic and flexible proposal that will protect consumers and help bring down the cost of health care for families, businesses, and taxpayers.”

The purpose of the proposed legislation is to establish a single Exchange in New York – a centralized, customer-service oriented marketplace where individuals and small groups will be able to purchase qualified health plans, receive eligibility and subsidy determinations, and be enrolled in a range of coverage options, including public health coverage programs.

The Exchange will make available health plans, including certain qualified dental plans, to individuals and employers beginning on or before January 1, 2014. Under this proposed legislation, the Exchange will establish the minimum requirements an insurer shall meet to be considered for participation in the Exchange and will implement procedures for the certification, recertification, and decertification of health plans as qualified health plans. The Exchange will also assign ratings to qualified health plans offered through the Exchange on the basis of relative quality and price, in accordance with the Affordable Care Act.

In addition, the Exchange will include a Small Business Health Options Program (SHOP), which will assist small employers in facilitating the enrollment of their employees in qualified health plans offered in the group market.

While the Federal law requires each Exchange to be “self-sustaining” by January 1, 2015, federal funds will support the planning, implementation, and operation of the Exchange through December 2014. New York has already been selected to receive funding under an Early Innovator Grant ($27 million) and an Exchange Planning Grant ($1 million).

The bill also provides critical protections meant to assist individuals in using the Exchange. For example, the bill provides that the Exchange will operate a toll-free telephone line to assist consumers and an Internet website containing standardized comparative information on qualified health plans. The website will also feature a calculator allowing individuals to determine the actual cost of coverage. The bill also requires the Exchange to establish a program to award grants to entities to serve as “navigators” to help educate consumers and facilitate enrollment.

With the enactment of this legislation, assuming other applicable criteria are met, New York will qualify to apply for additional federal funding to support Exchange planning and establishment through December 31, 2014.

Next week’s blogticles will discuss important planning aspects of 2011.

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

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[1] See Public Law 111-148; Pub. L. 111-152.

Why is this Topic Important to Wealth Managers? This blogticle provides an overview of a recently rule promulgation as part of the Affordable Care Act. Wealth managers providing health insurance should generally be aware of the current regulations as they apply to client planning.

Yesterday, the Department of Health and Human Services (HHS), working in partnership with the States, issued a final regulation which is designed to scrutinize large health insurance premium increases, and to provide consumers with access to clear information about those increases.

Under the final regulation:

• Starting September 1, 2011, insurers seeking rate increases of 10 percent or more for non-grandfathered plans in the individual and small group markets are required to publicly disclose the proposed increases and the justification for them. Such increases will be reviewed by either State or Federal experts to determine whether they are unreasonable.

• An easy-to-access, consumer-friendly disclosure form explaining the proposed increases will also be made publicly available through HHS, State and/or insurer websites.

• Starting September 1, 2012, the 10-percent threshold will be replaced with a State-specific threshold, using data that reflect insurance and health care cost trends particular to that State. The final rule clarifies that HHS will work with States in developing these thresholds.

• States with effective rate review systems will conduct the reviews, but if a State lacks the resources or authority to conduct actuarial reviews, HHS would conduct them. HHS expects that the vast majority of States will conduct these reviews, and will make this determination by July 1. HHS will continue to make resources available to States to strengthen their rate review processes.

Publication of the final rule under the Act was prompted in part since the rise in health insurance premium over the last decade. Since 1999, the cost of coverage for a family of four has climbed 131 percent. [1] Moreover the rule comes as health insurance companies have reported some of their highest profits in years.[2]

The regulation issued today finalizes proposed rules issued in December 2010. The final rule has several additions to the proposed rule, including a requirement that states provide an opportunity for public input in the evaluation of rate increases subject to review.

The Affordable Care Act brings an unprecedented level of scrutiny to health insurance rate increases. The new rate review regulation works in conjunction with earlier rules requiring insurers to spend at least 80 percent of premium dollars on direct medical care or work to improve the quality of care for patients or provide a rebate to their enrollees. The “medical loss ratio” regulation was released on November 22, 2010. The medical loss ratio regulation is designed to ensure that premiums are being spent on health care and quality-related costs, not excessive administrative costs and executive salaries.

The New York Times reports that since “Federal officials acknowledged that they did not have the authority to block rates that were found to be unjustified” the feds provided other support in the form of $250 million. The Times reports that a few states have turned downed the funding because they are generally opposed to the federal health care law.[3]. HHS has already awarded $44 million in Affordable Care Act in connection with state oversight capability funding.

Next week’s blogticle will present discussion on topics related to planning with life insurance.

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

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[1] The Kaiser Family Foundation and Health Research Educational Trust. “Employer Health Benefits 2010 Annual Survey”. http://ehbs.kff.org/pdf/2010/8085.pdf. Last Accessed 5/19/2011.

[2] See generally New York Times, “Health Insurers Making Record Profits as Many Postpone Care.” May 13, 2011.http://www.nytimes.com/2011/05/14/business/14health.html.  “The nation’s major health insurers are barreling into a third year of record profits…”

[3] Robert Pear. “Insurers Told to Justify Rate Increases Over 10 Percent.” New York Times. Published: May 19, 2011. http://www.nytimes.com/2011/05/20/us/politics/20health.html. Last Accessed May 19, 2011.

Why is this Topic Important to Wealth Managers? This blogticle provides discussion and analysis of health insurance costs for self-employed individuals. The topic is relevant to those wealth managers with small business clients as well as self-employed wealth managers themselves, as it discusses treatment of deductions and the calculation of self-employment income with regards to health insurance costs.

In calculating adjusted gross income for income tax purposes, self-employed individuals may deduct the cost of health insurance for themselves and their spouses, dependents, and any children who have not attained age 27 as of the end of the taxable year. [1]

The deduction is not available for any month in which the self-employed individual is eligible to participate in an employer-subsidized health plan (maintained by the employer of the taxpayer or the taxpayer’s spouse). Moreover, the deduction may not exceed the earned income (within the meaning of section 401(c)(2)) derived by the self-employed individual from the trade or business with respect to which the plan providing the health insurance coverage is established.[2] The deduction applies only to the cost of insurance (i.e., it does not apply to out-of-pocket expenses that are not reimbursed by insurance).

The Self-Employment Contributions Act (‘‘SECA’’) imposes taxes on the net earnings from self-employment of self-employed individuals (‘‘self-employment income’’). The tax is composed of two parts: (1) the old age, survivors, and disability insurance (‘‘OASDI’’) tax; and (2) the hospital insurance (‘‘HI’’) tax. The rate of the OASDI portion of SECA taxes is equal to 12.4 percent of self-employment income and generally applies to self-employment income up to the Federal Insurance Contributions Act (‘‘FICA’’) taxable wage base ($106,800 in 2010). The current rate of the HI portion is equal to 2.9 percent[3] of self-employment income and there is no cap on the amount of self-employment income to which the rate applies.

For purposes of computing net earnings from self-employment, taxpayers are permitted a deduction equal to the product of the taxpayer’s earnings (determined without regard to this deduction) and one-half of the sum of the rates for OASDI (12.4 percent) and HI (2.9 percent), i.e., 7.65 percent of net earnings. This deduction reflects the fact that the FICA rates apply to an employee’s wages, which do not include FICA taxes paid by the employer, whereas the self-employed individual’s net earnings are economically equivalent to an employee’s wages plus the employer share of FICA taxes.

The deduction allowable for the cost of health insurance for the self-employed individual and the individual’s spouse, dependents, and children who have not attained age 27 as of the end of the taxable year for income taxes is not taken into account in determining an individual’s net earnings from self-employment for purposes of SECA taxes.[4]

Under Section 2042 of the Small Business Jobs Act of 2010,[5] the deduction for income tax purposes allowed to self-employed individuals for the cost of health insurance for themselves, their spouses, dependents, and children who have not attained age 27 as of the end of the taxable year 2010 was taken into account, and thus was also allowed, in calculating net earnings from self-employment for purposes of SECA taxes for taxable year 2010 only.

However, the provision only applied to tax year 2010 and the treatment for health insurance costs for self-employed individuals reverted back to its original treatment in 2011.

Tomorrow’s blogticle will continue our series on tax law changes related to wealth managers in 2011.

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

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[1] IRC Sec. 162(l)(1). See Notice 2010–38 for a discussion of the deduction for children who have not attained age 27 as of the end of the taxable year.

[2] IRC Sec. 162(l)(2).

[3] IRC Sec. 1401; However, under section 9015 of the Patient Protection and Affordable Care Act, Pub. L. No. 111–148, for remuneration and self-employment income received for taxable years beginning after December 31, 2012, the HI tax under SECA is increased by an additional tax of 0.9 percent on self-employment income received in excess of a threshold amount.

[4] IRC Sec. 162(l)(4).

[5] Public Law 111–240.

Why is this Topic Important to Wealth Managers? This blogticle presents discussion related to the new Affordable Care Act which affects Medicare participants. Thus, it is important for wealth managers to be informed on the changes which will begin to appear so that they may better prepare clients who receive Medicare benefits.

The Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act collectively referred to as the Affordable Care Act, [1] includes a number of policies intended to help physicians, hospitals, and other caregivers improve the safety and quality of patient care and make health care more affordable. The idea is by focusing on the needs of patients and linking payments to outcomes, delivery system reforms should help improve the health of individuals and communities and slow national health care cost growth.

On March 31, 2011, the Department of Health and Human Service released proposed new rules to help doctors, hospitals, and other providers better coordinate care for Medicare patients through Accountable Care Organizations (ACOs).

ACOs are designed to create incentives for health care providers to work together to treat an individual patient across care settings – including doctor’s offices, hospitals, and long-term care facilities. The Medicare Shared Savings Program will reward ACOs that lower growth in health care costs while meeting performance standards on quality of care and putting patients first. Patient and provider participation in an ACO is purely voluntary.

Today, more than half of Medicare beneficiaries have five or more chronic conditions such as diabetes, arthritis, hypertension, and kidney disease.[2] These patients often receive care from multiple physicians. A failure to coordinate care can often lead to patients not getting the care they need, receiving duplicative care, and being at an increased risk of suffering medical errors. On average, each year, one in seven Medicare patients admitted to a hospital has been subject to a harmful medical mistake in the course of their care.[3] And nearly one in five Medicare patients discharged from the hospital is readmitted within 30 days [4]– a readmission many patients could have avoided if their care outside of the hospital had been aggressive and better coordinated.

Improving coordination and communication among physicians and other providers and suppliers through Accountable Care Organizations may help improve the care Medicare beneficiaries receive, while also helping lower costs. According to the analysis of the proposed regulation for ACOs, Medicare could potentially save as much as $960 million over three years.

Under the proposed rule, an ACO refers to a group of providers and suppliers of services (e.g., hospitals, physicians, and others involved in patient care) that will work together to coordinate care for the patients they serve with Medicare. The goal of an ACO is to deliver seamless, high quality care for Medicare beneficiaries. The ACO would be a patient-centered organization where the patient and providers are “true partners” in care decisions.

Any patient who has multiple doctors probably understands the frustration of fragmented and disconnected care: lost or unavailable medical charts, duplicated medical procedures, or having to share the same information over and over with different doctors. Accountable Care Organizations are designed to lift this burden from patients, while improving the partnership between patients and doctors in making health care decisions. People with Medicare will hopefully have better control over their health care, and in turn their doctors can provide better care because they will have better information about their patients’ medical history and can communicate with a patient’s other doctors. Medicare beneficiaries whose doctors participate in an ACO will still have a full choice of providers and can still choose to see doctors outside of the ACO. In addition, patients choosing to receive care from providers participating in ACOs will have access to information about how well their doctors, hospitals, or other caregivers are meeting quality standards.

Tomorrow’s blogticle will continue to discuss important planning aspects of 2011.

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

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[1] Public Law 111-148; Pub. L. 111-152.

[2] Medicare Payment Advisory Commission. MedPac Report to Congress: Promoting Greater Efficiency in Medicare. June 2007. Medicare Payment Advisory Commission.

[3] Daniel R. Levinson, Adverse Events in Hospitals: National Incidence Among Medicare Beneficiaries, Department of Health and Human Services Office of the Inspector General, November 2010.

[4] Stephen F. Jencks, M.D., M.P.H., Mark V. Williams, M.D., and Eric A. Coleman, M.D., M.P.H. Rehospitalizations among Patients in the Medicare Fee-for-Service Program. N Engl J Med 2009; 360:1418-1428.April 2009.

Why is this Topic Important to Wealth Managers? This discussion is focused on a hot topic in Washington and around the country.  The new 1099 reporting requirements that are expected to come into effect next year may be amended or removed all together. Wealth managers would be well served to be knowledgeable on the subject that not only affects clients and their businesses, but it also directly affects many wealth managers themselves who pay for goods and services as a trade or business. Thus, here at Advanced Markets we bring wealth managers in particular the most relevant and up-to-date information on the web.

The House of Representatives passed H.R. 4, the Small Business Paperwork Mandate Elimination Act of 2011 Thursday afternoon by majority vote (314-112, with 76 Democrats joining a unanimous House GOP).[1] The legislation, if passed by the Senate and signed into law by President Obama, would repeal an expansion currently scheduled to take effect in 2012 of information that businesses must report to the Internal Revenue Service on Form 1099.

Specifically, the new legislation would amend the Internal Revenue Code to repeal the expanded 1099 information reporting requirements on payments made to corporations, rental property expense payments, and payments for property and other gross proceeds.  The legislation would thus strike portions of section 6041 of the Internal Revenue Code which were added by the Patient Protection and Affordable Care Act of 2010 (PPA).

The PPA expanded tax information reporting requirements to require businesses to issue a Form 1099 for any payments to corporations (rather than just to individuals) and for any payments for property (rather than just for services or investment income) that exceed $600 per year per payee.  H.R. 4 would strike language requiring “amounts in consideration for property” and “gross proceeds” to be subject to 1099 reporting requirements under section 6041 of IRS Code in order to eliminate the expanded reporting requirements.  The bill would also repeal expanded information reporting requirements on rental property expense payments that are currently in effect.

According to the Joint Committee on Taxation, repealing these expanded 1099 information reporting requirements for rental property expense payments as well as certain payments of more than $600 will reduce taxes by approximately $24.7 billion over ten years. [2]

Section 6041 of the Internal Revenue Code outlines reporting requirements and generally requires information returns to be made by every person (payor) engaged in a trade or business that makes payments aggregating $600 or more in any taxable year to another person (payee) in the course of the payor’s trade or business.  The information returns must be filed with the Internal Revenue Service and corresponding statements must be sent to each payee.

Beginning in 2012, certain payments not previously subject to 1099 reporting requirements, including those made to corporations and those made for property, will become subject to the reporting requirements under the PPA.  The PPA and subsequent legislation expanded information reporting requirements of businesses for payments of $600 or more to any vendor and on rental property expense payments.  Some argue, these new requirements would likely impose a huge tax compliance burden on small businesses, forcing them to devote resources to tax filing instead of to business expansion and job creation.

Please check back with Advisorfyi and Advisorfx for more timely information on 1099 reporting.

Next week’s blogticles will present some interesting new topics including alternative risks.

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

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[1] John R. Parkinson.  ABC News. House Passes Repeal of 1099 Requirement.  http://blogs.abcnews.com/thenote/2011/03/house-passes-repeal-of-1099-requirement.html.  March 3, 2011.  Last Accessed March 3, 2011.

[2] JCX 12-11. Estimated Revenue Effects Of The Chairman’s Amendment In The Nature Of A Substitute To H.R. 4, The “Comprehensive 1099 Taxpayer Protection And Repayment Of Exchange Subsidy Overpayments Act Of 2011,” February 16, 2011.  http://www.jct.gov/publications.html?func=startdown&id=3736.  Last Accessed March 3, 2011.

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.

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[1] Public Law 111-148.

[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.

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[1] Pub. L. No. 111-148.

[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.

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[1] Pub. L. No. 111-148.

[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.