The Elephant in the Health Care Room

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The Elephant in the Health Care Room

Postby stillrobertpaulsen » Thu Mar 11, 2010 1:47 pm

The Elephant in the Health Care Room

It's the topic that's been dominating the evening news for years: How do we fix our health care system? The responses to this question have run an emotional gamut similar to the Elisabeth Kubler-Ross stages of grief. The first stage is denial. We've seen that in truckloads from certain protesters inside and outside of Town Hall meetings last year, wailing desperately to preserve a status quo which in their skewed view of reality means keeping the government out of Medicare. The most popular stage all across the ideological spectrum seems to be the second stage: anger. Anger at President Obama for trying to institute socialist health care. Anger at President Obama for not trying to institute single payer universal health care. Anger at insurance companies for their usurous rates and pre-existing condition exclusions. Anger at the government for inaction, proposed action, imaginary action, ad nauseum. There's been a lot of bargaining, the third stage, as the compromise between the House and Senate approaches its conclusion on the bill for proposed health care reform. These responses have ranged from, "Well, if they can just squeeze the public option in, then I'll support it" to, "If they pass this socialist bill, then I'll get my health care in Costa Rica". (Real smart, Rush, Costa Rica has universal health care!) Then there are many in the fourth stage, depression, who don't believe anything will change, or that any good will come from this current effort at reform. I believe that the fifth stage, acceptance, is that whatever form the bill ends up in, this is the way the system changes within the context of our current paradigm. Slowly, incrementally, shaky enough to rock the boat for some, but never radical enough to flip it upside down. Every change, big or small, must fit into the Infinite Growth Paradigm.

But what happens when the paradigm collapses? This is the proverbial elephant in the living room where real health care reform is concerned. When our economic infrastructure predicated on infinite growth collides with the physical limitations of our planet, that infrastructure is toast. How will that collapse affect our health care system? That is the subject of a wonderful article written by Daniel Bednarz published in the July/August 2007 issue of Orion magazine. Just the first two paragraphs spell out the connection between Peak Oil and pharmaceuticals and how dependent our health care system is on oil and natural gas:

Medicine After Oil
It could be distributed a lot more democratically
by Daniel Bednarz
Published in the July/August 2007 issue of Orion magazine




The scale and subtlety of our country’s dependency on oil and natural gas cannot be overstated. Nowhere is this truer than in our medical system.

Petrochemicals are used to manufacture analgesics, antihistamines, antibiotics, antibacterials, rectal suppositories, cough syrups, lubricants, creams, ointments, salves, and many gels. Processed plastics made with oil are used in heart valves and other esoteric medical equipment. Petrochemicals are used in radiological dyes and films, intravenous tubing, syringes, and oxygen masks. In all but rare instances, fossil fuels heat and cool buildings and supply electricity. Ambulances and helicopter “life flights” depend on petroleum, as do personnel who travel to and from medical workplaces in motor vehicles. Supplies and equipment are shipped—often from overseas—in petroleum-powered carriers. In addition there are the subtle consequences of fossil fuel reliance. A recently retired doctor informs me, “In orthopedics we used to set fractures mostly by feel and knowing the mechanics of how the fractures were created. I doubt that many of the present orthopedists could do a good job if you took away their [energy-powered] fluoroscope or X-ray.”



What I love about this article is that the author doesn't give into despair and say, "We're doomed!" There will be options. Here are some:


At present we have a tiered health-care system. At the top is a Ferrari model of care that reflects our affluence, fascination with technology, and extravagance. Ferrari care has made possible the treatment of rare life-threatening diseases and expensive procedures like organ transplants, but it has also been used for esoteric and often redundant testing and vanity procedures such as botox injections. At the bottom is a jalopy model serving over 50 million un- and underinsured Americans who very often receive no treatment, defer treatment until their condition cannot be ignored, or face economic ruin when they seek adequate care. If the two tiers persist after peak oil, they will eventually be preserved by force—armed guards at gated medical facilities—for the few able to pay, while the rest of Americans are relegated to the jalopy and faced with overt rationing, triage, and curtailment of medical care. Such an outcome would be an overt contravention of democratic values—most Americans tell pollsters they believe that health care is a human right, not a privilege awarded those with higher income.

What then should we do? The best democratic option is to replace both the Ferrari and the jalopy with a Honda. The post-peak Honda health-care model will of necessity operate with fewer overall resources and less energy than today’s health-care system, and at lower cost. But it need not result in poorer quality of care. Although the United States spends more on health than any other nation—per capita health-care costs in this country are three times those in Great Britain and more than twice those in Canada—we do not have the best health outcomes. A study in the Journal of the American Medical Association in 2006, for example, reported that “white, middle-aged Americans—even those who are rich—are far less healthy than their peers in England.”

The commonsensical Honda model will emphasize public health—the prevention of disease and the promotion of health within the population as a whole—over treatment medicine, which focuses on restoring health to chronically or acutely ill individuals. Typically accomplished through the diffusion of information, low-cost therapies, and the promotion of healthful nutrition and lifestyle, preventive medicine allows people to avoid or postpone disease, and to stay clear of the costliest and most energy-intensive sectors of the medical system—doctors’ offices, pharmacies, and the hospital. In the Honda model, treatment medicine would continue, but its role would be brought into better balance with the vastly more cost-effective and energy-efficient mode of preventive health care.

The public health system arose in the early decades of the last century as a response to fears of infectious diseases in our country’s crowded cities. Its outlook is inherently egalitarian—if the entire community is not protected, then no one’s health is assured. Public health is no longer the force it was when it sent “ladies in white uniforms” into communities to preach the Gospel of Germs, explaining the relationship between hygiene and disease prevention. Today, public health is overburdened and underfunded, receiving about 5 percent of health-care dollars, with the balance going to treatment medicine and to biomedical research.


This is what I consider a great example of optimistic practicality. If only we could come to a consensus within our country now that this should be our moral outlook within our health care system: "if the entire community is not protected, then no one’s health is assured."
"Huey Long once said, “Fascism will come to America in the name of anti-fascism.” I'm afraid, based on my own experience, that fascism will come to America in the name of national security."
-Jim Garrison 1967
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Re: The Elephant in the Health Care Room

Postby Elihu » Thu Nov 07, 2013 5:15 pm

Several years have passed since the Affordable Care Act of 2010 was enacted.
While the Act was a major piece of legislation with continuing and current impact,
readers are cautioned that the following text was originally written in the
fall of 2010 and, although revised, is now partially historical. As a result, readers
should be alert for subsequent developments, waivers, regulations, and expirations.
Importantly, in March of 2012, the constitutionality of the Affordable Care Act
was argued before the US Supreme Court. On June 28, 2012, the U.S. Supreme
Court upheld most of the constitutionality of the Patient Protection and Affordable
Care Act. Notably, the key requirement that individuals pay a penalty if they
fail to carry health insurance for themselves and their dependents was held constitutional,
while the requirement to purchase insurance, and the mechanism
used to expand Medicaid coverage were not.
More recently, in July 2013, the President delayed, for a year, the reporting requirement
of employers to offer proof of qualifying employee health care coverage.
As a result, the mandate will not be enforced until 2015 - the beat goes on.
Good luck.
i
Table of Contents
Introduction ...............................................................................................................................................1
Structural Provisions .................................................................................................................................2
Existing Insurance ...............................................................................................................................2
Grandfathered Plans ......................................................................................................................2
Medicaid.......................................................................................................................................2
Medicare.......................................................................................................................................3
American Health Benefit Exchanges....................................................................................................3
Qualified Health Plan ....................................................................................................................3
Essential Health Benefits .........................................................................................................3
Catastrophic-Only Plan .......................................................................................................4
Insurance Cooperatives .................................................................................................................4
State Flexibility .............................................................................................................................4
Changes to Public Programs.................................................................................................................4
Medicare.......................................................................................................................................4
Medicare Advantage (Part C) ..................................................................................................4
Medicare Prescription Drug Plan (Part D)...............................................................................5
Linking Payment to Quality Outcomes in Medicare................................................................5
Development of New Patient Care Models..............................................................................5
Medicaid Expansion ......................................................................................................................5
Children’s Health Insurance Program (CHIP)...............................................................................6
Simplifying Enrollment .................................................................................................................6
Dual Eligible Coverage and Payment Coordination......................................................................6
Individual Provisions.................................................................................................................................6
Individual Mandate & Penalties - §5000A...........................................................................................6
Penalty Exemptions .......................................................................................................................8
Grandfathered Plans Exception ...............................................................................................9
Refundable Premium Assistance Tax Credit - §36B............................................................................9
Mechanics.....................................................................................................................................9
Failure to Pay Remaining Premium.........................................................................................10
Eligibility & Federal Poverty Level (FPL) ..............................................................................10
Initial Income Base ..................................................................................................................10
Income Defined .......................................................................................................................11
Sliding Scale Credit.......................................................................................................................11
Adjustments..................................................................................................................................12
Exclusions ....................................................................................................................................13
Adult Dependents - §§162(l)(1) & 105(b)............................................................................................13
Itemized Deduction for Medical Expenses - §213(a) ...........................................................................13
Medicare Prescription Drug “Donut Hole” Rebate...............................................................................13
Hospital Insurance (HI) Tax .................................................................................................................14
Increased Percentage - §164(f) ......................................................................................................14
Expanded to Investment Income - §1411 ......................................................................................14
HSAs & Archer MSAs - §220 ..............................................................................................................15
Drugs & Medications ....................................................................................................................15
Increased Withdrawal Penalty.......................................................................................................15
Health Professionals Loan Repayment Tax Relief - §108(f)(4) ...........................................................15
Disclosure of Tax Return Information - §6103.....................................................................................16
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Business Provisions...................................................................................................................................20
Employer (Shared Responsibility) Mandate.........................................................................................20
50 or More Employees: Penalty for Inadequate Coverage - §4980H...........................................20
200+ Employees – Automatic Enrollment & Notice.....................................................................22
Employer Reporting of Coverage - §6056............................................................................................23
Postponement of Employer Reporting until 2015 .........................................................................23
Insurer Reporting Requirements - §6055..............................................................................................24
Summary of Benefits ............................................................................................................................24
Small Business Health Insurance Expense Tax Credit - §45R.............................................................25
Tax on High-Cost Employer Plans - §4980I ........................................................................................26
Fees on Insured & Self-Insured Health Plans - §4375..........................................................................27
Inclusion of Health Coverage on W-2 - §6051.....................................................................................27
Cafeteria Plans - §125...........................................................................................................................27
Eligible Benefit - §125(f) ..............................................................................................................27
FSAs -§125(i) thru (k) ...................................................................................................................28
Simple Cafeteria Plans for Small Businesses - §125(j) thru (l) .....................................................28
No Deduction for Medicare Part D Expenses - §139A.........................................................................28
Excise Tax on Tanning Services - §5000B...........................................................................................28
Annual Fee on Health Insurance Providers ..........................................................................................29
Remuneration Paid by Health Insurance Providers - §163(m)(6).........................................................29
Excise Tax on Medical Devices - §4191 ..............................................................................................30
Pharmaceutical Manufacturer & Importer Annual Fee.........................................................................30
Therapeutic Discovery Project Credit - §48D ......................................................................................30
Free Choice Vouchers - §§139A, 162(a), & 6056, ...............................................................................30
Miscellaneous Provisions ...........................................................................................................................31
Adoption Tax Credit & Assistance - §§23 & 137.................................................................................31
Form 1099 for Payments to Corporations - §6041(h)...........................................................................31
Clarification of the Economic Substance Doctrine - §7701(o).............................................................32
Corporate Estimated Taxes...................................................................................................................32
Time Table of Selected Provisions.............................................................................................................32
2010.....................................................................................................................................................32
2011.....................................................................................................................................................34
2012.....................................................................................................................................................35
2013.....................................................................................................................................................35
2014.....................................................................................................................................................36
2015.....................................................................................................................................................37
2017.....................................................................................................................................................37
2018.....................................................................................................................................................38
iii


1
Introduction
Health care reform is made up of two new laws. On March 23, 2010, using complex
parliamentary procedures, the Patient Protection and Affordable Care Act
(PPAC) [HR 3590] with over $400 billion in new taxes and “revenue raisers” was
signed by President Obama and enacted into law. This was followed on March 26
by the President signing and enacting the Health Care and Education Reconciliation
Act of 2010 (RECON) [HR 4872], which added new provisions and
amended several portions of PPAC.
Health care reform generally deals with the health care system and its changes
are mostly gradual. However, many key provisions were effective in the year of
enactment:
(1) elimination of lifetime limits on coverage (PPAC §2711),
(2) prohibition of rescissions of health insurance policies (PPAC §2711),
(3) prohibition of pre-existing condition exclusions for children,
(4) expansion of dependent coverage to age 26 (PPAC §2714),
(5) creation of a temporary reinsurance program for early retirees (PPAC
§1102),
(6) creation of a small business health insurance expenses tax credit (IRC
§45R),
(7) creation of a temporary high risk pool for individuals who are uninsured
because of pre-existing conditions,
(8) expanding the adoption credit and assistance program (§23 & §137),
(9) tax relief for health professionals with State loan repayment,
(10) indoor tanning services tax, and
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(11) provision of a $250 paid to Medicare beneficiaries affected by the prescription
"donut hole."
Gradually, additional insurance reforms will be implemented. Across individual
and small group health insurance markets in all states, new rules will end medical
underwriting and pre-existing condition exclusions. Insurers will be prohibited
from denying coverage or setting rates based on gender, health status, medical
condition, claims experience, genetic information, evidence of domestic violence,
or other health-related factors. Premiums will vary only by family structure,
geography, actuarial value, tobacco use, participation in a health promotion
program, and age (but not more than three to one).
Importantly, the above two Acts also contain many revisions to the Internal
Revenue Code and impose significant responsibilities and taxes on individuals
and employers. These materials are a short overview of the health care acts with
emphasis on selected tax provisions of general interest.
Structural Provisions
Existing Insurance
Grandfathered Plans
PPAC §1251 allows any individual enrolled in any form of health insurance
to maintain their coverage as it existed on the date of enactment. These are
grandfathered plans and do not have to meet higher benefit standards of new
policies.
However, while changes in premiums or the addition of family members
should have no impact, any significant change (e.g., adjustments to benefits
and cost-sharing provisions like the deductible) could make an existing plan a
new policy and thus not eligible for grandfathering. As a result, an existing
plan may not be viable for long because insurers cannot add benefits or enroll
more people in noncompliant policies.
Medicaid
Unless a state faces a budget shortfall, they cannot cut people from Medicaid
until exchanges start operating in 2014. In the meantime, many preventive
services will be offered without cost. In addition, states cannot drop children
from Medicaid or the Children’s Health Insurance Program until 2019.
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Medicare
Medicare recipients will pay less for preventive care and prescription drugs.
However, subsidies for Medicare Advantage plans run by insurance companies
under contract with the government will be slashed substantially, leaving
beneficiaries with the prospect of higher premiums or reduced benefits.
American Health Benefit Exchanges
By 2014, each state must establish an exchange to help individuals and small employers
obtain coverage (PPAC §1311). Plans participating in exchanges will be
accredited for quality (i.e., a qualified health plan), will present their benefit options
in a standardized manner for comparison, and will use a single enrollment
form.
Qualified Health Plan
A qualified health plan, offered through the new American Health Benefit
Exchange, must provide essential health benefits which include cost sharing
limits (PPAC §1301).
Essential Health Benefits
PPAC §1302 defines an essential health benefits package as one that covers
essential health benefits, limits cost-sharing, and has a specified actuarial
value (pays for a specified percentage of costs), as follows:
1. Secretary’s Further Definition. For the individual and small group
markets, the provision requires the Secretary of Health and Human
Services (HHS) to define essential health benefits, which must be
equal in scope to the benefits of a typical employer plan.
2. Out-of-Pocket Limits & Deductibles. For all plans in all markets, the
provision prohibits out-of-pocket limits that are greater than the limits
for Health Savings Accounts. For the small group market, it prohibits
deductibles that are greater than $2,000 for individuals and $4,000 for
families. The provision indexes the limits and deductible amounts by
the percentage increase in average per capita premiums.
3. (“Metallic”) Coverage Levels. For the individual and small group
markets, the provision requires one of the following levels of coverage,
under which the plan pays for the specified percentage of costs:
(a) Bronze: 60 percent,
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(b) Silver: 70 percent,
(c) Gold: 80 percent, and
(d) Platinum: 90 percent.
Catastrophic-Only Plan
In the individual market, a catastrophic-only plan may be offered to
individuals who are under the age of 30 or who are exempt from the
individual responsibility requirement because coverage is unaffordable
to them or because of a hardship (PPAC §1302).
A catastrophic plan must cover essential health benefits and at least
three primary care visits, but must require cost-sharing up to the health
savings account (HSA) out-of-pocket limits. Also, if an insurer offers a
qualified health plan, it must offer a child-only plan at the same level
of coverage.
Insurance Cooperatives
Federal support will be available for new non-profit, member run insurance
cooperatives, and the Office of Personnel Management will supervise the offering
by private insurers of multi-State plans, available nationwide.
State Flexibility
States will have flexibility to establish basic health plans for non-Medicaid,
lower-income individuals; states may also seek waivers to explore other reform
options; and states may form compacts with other states to permit
cross-state sale of health insurance (PPAC §1331). No federal dollars may be
used to pay for abortion services.
Changes to Public Programs
The Patient Protection and Affordable Care Act and the Health Care and Education
Reconciliation Act make important changes to Medicare and Medicaid.
Medicare
Medicare Advantage (Part C)
Medicare Advantage (MA) payments will be based on the average of the
bids submitted by insurance plans in each market. Bonus payments will be
available to improve the quality of care and will be based on an insurer’s
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level of care coordination and care management, as well as achievement
on quality rankings.
Medicare Prescription Drug Plan (Part D)
In order to have their drugs covered under the Medicare Part D program,
drug manufacturers will provide a 50 percent discount to Part D beneficiaries
for brand-name drugs and biologics purchased during the coverage
gap beginning January 1, 2011 (PPAC §3301). The initial coverage limit
in the standard Part D benefit was expanded by $500 for 2010.
The PPAC also reduces the Part D premium subsidy for beneficiaries
with incomes above the Part B income thresholds (PPAC §3308).
Linking Payment to Quality Outcomes in Medicare
A value-based purchasing program for hospitals will launch in fiscal year
2013 to link Medicare payments to quality performance on common,
high-cost conditions (PPAC §3001).
The Physician Quality Reporting Initiative (PQRI) is extended through
2014, with incentives for physicians to report Medicare quality data – physicians
will receive feedback reports beginning in 2012 (PPAC §3002).
Long-term care hospitals, inpatient rehabilitation facilities, certain cancer
hospitals, and hospice providers will participate in quality measure reporting
starting in fiscal year 2014, with penalties for non-participating
providers.
Development of New Patient Care Models
A new Center for Medicare & Medicaid Innovation will research, develop,
test, and expand innovative payment and delivery arrangements.
Accountable Care Organizations (ACOs) that take responsibility for cost
and quality of care will receive a share of savings they achieve for Medicare.
Medicaid Expansion
Beginning on January 1, 2014, all children, parents and childless adults who
are not entitled to Medicare and who have family incomes up to 133 percent
of the federal poverty level (FPL) will become eligible for Medicaid.
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Between 2014 and 2016, the federal government will pay 100 percent of the
cost of covering newly-eligible individuals. After that, Federal assistance will
continue at the following rates:
(a) 95 percent in 2017,
(b) 94 percent in 2018,
(c) 93 percent in 2019, and
(d) 90 percent thereafter.
Children’s Health Insurance Program (CHIP)
States will be required to maintain income eligibility levels for CHIP through
September 30, 2019. The current reauthorization period of CHIP is extended
for two years, to September 30, 2015. Between fiscal years 2016 and 2019,
states would receive a 23 percentage point increase in the CHIP federal
match rate, subject to a 100 percent cap.
Simplifying Enrollment
Individuals will be able to apply for and enroll in Medicaid, CHIP, and an exchange
through state-run websites. Medicaid and CHIP programs and exchanges
will coordinate enrollment procedures to provide seamless enrollment
for all programs. Hospitals will be permitted to provide Medicaid services
during a period of presumptive eligibility to members of all Medicaid
eligibility categories.
Dual Eligible Coverage and Payment Coordination
The Secretary of Health and Human Services (HHS) will establish a Federal
Coordinated Health Care Office to integrate care under Medicare and Medicaid,
and improve coordination among the federal and state governments for
individuals enrolled in both programs (dual eligibles).
Individual Provisions
Individual Mandate & Penalties - §5000A
IRC §5000A requires U.S. citizens and legal residents to maintain minimum essential
coverage beginning in 2014 (PPAC §1501). This minimum essential coverage
includes:
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(1) government-sponsored health programs (e.g. Medicare and Medicaid),
(2) eligible employer-sponsored health plans,
(3) health plans in the private market,
(4) grandfathered health plans, and
(5) other coverage as recognized by the Secretary of HHS.
In other words, individuals not eligible for Medicaid, Medicare, or other government
sponsored coverage are required to maintain minimum essential coverage.
Failure to maintain minimum essential coverage results in a penalty. The calculation
uses the taxpayer’s household income and a flat dollar amount. As a result,
the penalty is the greater of:
(1) $95 or one percent of income in 2014,
(2) $325 or two percent of income in 2015, and
(3) $695 or 2.5 percent of income in 2016, up to a cap of the national average
bronze plan premium.
Example
Carl is a 42 year old single individual with modified adjust
gross income of $40,000 and does not have the required
minimum essential coverage for all of 2016. Unless he is an
exempt individual, Carl would be liable for a penalty of $1,000
- the greater of: $695 or $1,000 (2.5% of his modified adjusted
gross income).
Families will pay half the amount for children up to a cap of $2,250 for the entire
family. After 2016, dollar amounts will increase by the annual cost of living adjustment.
Liens and seizures are not authorized to enforce this penalty, and noncompliance
will not be subject to criminal penalties.
8
In terms of enforcement, Congress was careful there was nothing too punitive.
Thus, the IRS is prohibited from seizing assets or pursuing criminal charges
against people who do not pay their fines. Apparently, the IRS can only garnish
future tax refunds.
As a result, many individuals could decide it would be cheaper to pay the annual
fines than pay health insurance premiums. Such individuals could always sign up
for insurance later when they need it since insurance companies could not deny
coverage for pre-existing conditions.
This provision is effective for tax years beginning after December 31, 2013.
Penalty Exemptions
Exemptions to the individual responsibility requirement to maintain minimum
essential coverage are made for:
(a) religious objectors,
(b) individuals not lawfully present in the U.S.,
(c) incarcerated individuals,
(d) those who cannot afford coverage,
(e) taxpayers with income less than 100 percent of the FPL,
(f) members of Indian tribes,
(g) those who have received a hardship waiver,
(h) individuals whose contribution toward employer-sponsored coverage
or “bronze” level insurance exchange coverage would exceed 8% of
household income, and
(i) those who were not covered for a period of less than three months
during the year.
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Grandfathered Plans Exception
Any individual or family who currently has coverage and would like to retain
that coverage can do so under a “grandfather” provision (PPAC
§1251).
This coverage is deemed to meet the individual responsibility to have
health coverage. Similarly, employers that currently offer coverage are
permitted to continue offering such coverage under the “grandfather”
policy.
Refundable Premium Assistance Tax Credit - §36B
Effective for tax years ending after December 31, 2013, PPAC §1401 creates a
refundable tax credit (the “premium assistance credit”) for eligible individuals
and families who purchase health insurance through an American Health Benefit
Exchange.
Comment: The premium assistance credit, which is refundable and payable
in advance directly to the insurer, subsidizes the purchase of certain health
insurance plans through an exchange.
Mechanics
Under this provision, an eligible individual enrolls in a plan offered through
an exchange and reports his or her income to the exchange. Based on the information
provided to the exchange, the individual receives a premium assistance
credit based on income and the Treasury pays the premium assistance
credit amount directly to the insurance plan in which the individual is enrolled.
The individual then pays to the plan in which he or she is enrolled the
dollar difference between the premium tax credit amount and the total premium
charged for the plan.
Note: For employed individuals who purchase health insurance through an
exchange, the premium payments are made through payroll deductions.
Although the credit is generally payable in advance directly to the insurer, alternatively,
individuals may elect to purchase health insurance out-of-pocket
and apply to the IRS for the credit at the end of the taxable year. The
amount of the reduction in premium is required to be included with each bill
sent to the individual.
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Failure to Pay Remaining Premium
Individuals who fail to pay all or part of the remaining premium amount
are given a mandatory three-month grace period prior to an involuntary
termination of their participation in the plan.
Eligibility & Federal Poverty Level (FPL)
The premium assistance credit is available for individuals (single or joint filers)
with household incomes between 100 and 400 percent of the Federal
poverty level (“FPL”) for the family size involved who do not received health
insurance through an employer (or a spouse's employer) or a public insurance
program. The FPL is based on family size.
Example
Under current levels, the subsidy range would extend to an
individual with income from $14,404 to $43,320 and to a family
of four with income from $29,327 to $88,200.
Individuals who are lawfully present in the United States but are not eligible
for Medicaid because of their immigration status are treated as having a
household income equal to 100 percent of the FPL (and thus eligible for the
premium assistance credit) as long as their household income does not actually
exceed 100 percent of the FPL (PPAC §1331). Undocumented immigrants
are ineligible for premium assistance tax credits (§36B(e)(2)).
To be eligible for the premium assistance credit, taxpayers who are married
(within the meaning of §7703) must file a joint return. Individuals who are
listed as dependants on a return are ineligible for the premium assistance
credit.
Initial Income Base
Initial eligibility for the premium assistance credit is based on the individual's
income for the tax year ending two years prior to the enrollment period.
Individuals (or couples) may update eligibility information or request a
redetermination of their tax credit eligibility if they:
(1) experience a change in marital status or other household circumstance,
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(2) experience a decrease in income of more than 20 percent, or
(3) receive unemployment insurance.
Income Defined
Household income is defined as the sum of:
(1) the taxpayer's modified adjusted gross income, plus
(2) the aggregate modified adjusted gross incomes of all other individuals
taken into account in determining that taxpayer's family size
(but only if such individuals are required to file a tax return for the
taxable year).
Modified adjusted gross income is defined as adjusted gross income increased
by:
(1) the amount (if any) normally excluded by IRC §911 (the exclusion
from gross income for citizens or residents living abroad), plus
(2) any tax-exempt interest received or accrued during the tax year.
Sliding Scale Credit
The premium assistance credit increases, in a linear manner, for individuals
and families with household incomes between 100 and 400 percent of the
FPL to help offset the cost of private health insurance premiums.
The premium assistance credit amount is determined by the Secretary of
HHS based on the percentage of income that the cost of premiums represents.
The credit is calculated on a sliding scale beginning at two percent of
income for those at 100 percent the FPL and phasing out at 9.5 percent of income
at 300-400 percent of the FPL.
Note: If an employer’s offer of coverage exceeds 9.5 percent of a worker’s
family income, or the employer pays less than 60 percent of the premium,
the worker may enroll in an exchange and receive credits.
Out-of-pocket maximums ($5,950 for individuals and $11,900 for families)
are reduced to one-third for those with income between 100-200 percent of
the FPL, one-half for those with incomes between 200-300 percent of the
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FPL, and two-thirds for those with income between 300-400 percent of the
FPL (PPAC §1402). Credits are available for eligible citizens and legallyresiding
aliens.
The premium assistance credit amount is tied to the cost of the second lowest-
cost silver plan (adjusted for age) which:
(1) is in the rating area where the individual resides,
(2) is offered through an exchange in the area in which the individual resides,
and
(3) provides self-only coverage in the case of an individual who purchases
self-only coverage, or family coverage in the case of any other individual.
If the plan in which the individual enrolls offers benefits in addition to essential
health benefits, even if the State in which the individual resides requires
such additional benefits, the portion of the premium that is allocable to those
additional benefits is disregarded in determining the premium assistance
credit amount.
The Kaiser Family Foundation currently has an online “Health Reform Subsidy
Calculator” located at:
http://healthreform.kff.org/SubsidyCalculator.aspx
Adjustments
Beginning in 2014, the percentages of income are indexed to the excess of
premium growth over income growth for the preceding calendar year (in order
to hold steady the share of premiums that enrollees at a given poverty
level pay over time).
Beginning in 2018, if the aggregate amount of premium assistance credits and
cost-sharing reductions exceeds 0.504 percent of the gross domestic product
for that year, the percentage of income is also adjusted to reflect the excess
(if any) of premium growth over the rate of growth in the consumer price index
for the preceding calendar year.
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Exclusions
For purposes of calculating household size, individuals who are in the country
illegally are not included. Individuals who are listed as dependants on a
return are ineligible for the premium assistance credit.
Premium assistance credits, or any amounts that are attributable to them,
cannot be used to pay for abortions for which federal funding is prohibited.
Premium assistance credits are not available for months in which an individual
has a free choice voucher (as defined in section 10108 of the Senate
amendment).
Adult Dependents - §§162(l)(1) & 105(b)
PPAC §2714 requires all plans offering dependent coverage to allow individuals
until age 26 to remain on their parents’ health insurance. Section 2301 of the
Reconciliation Act eliminated the requirement that adult children be unmarried.
Itemized Deduction for Medical Expenses - §213(a)
The PPAC §9013 increases the adjusted gross income threshold for claiming an
itemized deduction for medical expenses from 7.5 percent to 10 percent.
Example
In 2012 and 2013, Carl has adjusted gross income of $60,000
with unreimbursed medical expenses of $6,000 in each of
those years. For 2012, Carl can deduct medical expenses of
$1,500 ($6,000 - $4,500 ($60,000 x 7.5%)). For 2013, however,
his medical expenses are disallowed ($6,000 - $6,000
($60,000 x 10%)).
This provision is effective for tax years beginning after December 31, 2012.
Individuals age 65 and older are able to claim the itemized deduction for medical
expenses at 7.5 percent of adjusted gross income through 2016.
Medicare Prescription Drug “Donut Hole” Rebate
PPAC §1101 provided a $250 rebate for all Medicare Part D enrollees who entered
the donut hole in 2010. It also built on pharmaceutical manufacturers’ 50
percent discount on brand-name drugs that started in 2011 to provide 75 percent
coverage for brand-name and generic drugs by 2020 to fill the donut hole.
14
Hospital Insurance (HI) Tax
Increased Percentage - §164(f)
PPAC 9015 increases the employee portion of the hospital insurance tax part
of FICA, currently 1.45% of covered wages, by 0.9 percentage points on an
individual taxpayer earning over $200,000 ($250,000 for married couples filing
jointly). This tax is imposed on the combined wages of both the taxpayer
and the taxpayer’s spouse, in the case of a joint return. The revenues from
this tax will be credited to the HI trust fund.
Note: This increased hospital insurance tax applies to the hospital insurance
portion of the SECA tax on self-employment income in excess of the income
thresholds.
This provision is effective for remuneration received in tax years beginning
after December 31, 2012.
Expanded to Investment Income - §1411
Section 1402 of the Reconciliation Act expands the hospital insurance tax to
include a 3.8 percent tax on the lesser of:
(1) an individual’s net investment income for the year, or
(2) the amount an individual’s modified adjusted gross income above
$200,000 for singles, $250,000 for married filing jointly, or $125,000 for
married filing separately (only income in excess of these amounts is subject
to the tax).
Note: This tax also applies to estates and trusts. For such entities, the tax is
3.8% of the lesser of: (a) undistributed net investment income, or (b) adjusted
gross income over highest trust and estate tax bracket amount.
Investment income is income from interest, dividends, annuities, royalties,
rents, and net gain from disposition of property which is not derived in the
ordinary course of trade or business, excluding active S corporation or partnership
income. Net investment income is investment income reduced by deductions
allocable to such income.
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Example
Carl, a single taxpayer, has net investment income of
$50,000 and modified AGI of $235,000 in 2013. As a result,
the expanded hospital insurance tax is applied to $35,000,
the lesser of (1) the $50,000 net investment income, or (2)
$35,000 (modified AGI $235,000 over the single threshold of
$200,000). The 3.8% tax on $35,000 is $1,330.
This provision is effective for taxable years beginning after December 31,
2012.
HSAs & Archer MSAs - §220
Drugs & Medications
PPAC §9003 conformed the definition of qualified medical expenses for
HSAs, FSAs, and HRAs to the definition used for the medical expense itemized
deduction. As a result, over-the-counter drugs and medications no
longer are reimbursable from health savings accounts. However, over-thecounter
medicine obtained with a prescription (and insulin) continue to qualify
as a qualified medical expense.
This provision is effective for amounts paid with respect to tax years after
December 31, 2010.
Increased Withdrawal Penalty
PPAC §9004 increased the additional tax for HSA withdrawals prior to age
65 that are used for purposes other than qualified medical expenses from 10
percent to 20 percent. The additional tax for Archer MSA withdrawals not
used for qualified medical expenses increased from 15 percent to 20 percent.
This provision is effective for distributions made after December 31, 2010.
Health Professionals Loan Repayment Tax Relief - §108(f)(4)
PPAC §10908 excludes from gross income payments made under any State loan
repayment or loan forgiveness program that is intended to provide for the increased
availability of health care services in underserved or health professional
shortage areas.
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This provision is effective for amounts received by an individual in taxable years
beginning after December 31, 2008.
Disclosure of Tax Return Information - §6103
PPAC §1414 allows for disclosure of tax return information to carry out eligibility
requirements for programs listed in the Patient Protection Act. For example,
the Secretary of HHS can request the IRS to disclose taxpayer return information
when determining the premium assistance tax credit, any cost-sharing reduction,
or program participation eligibility. Likewise, the Commissioner of Social
Security can request the IRS to disclose taxpayer return information when determining
any adjustment to their Medicare Part D premium subsidy.
This provision is effective as of the date of enactment.
Business Provisions
Employer (Shared Responsibility) Mandate
50 or More Employees: Penalty for Inadequate Coverage - §4980H
Under PPAC §1513, a nondeductible penalty is imposed on any employer,
with an average of 50 or more full-time employees during the preceding calendar
year, that:
(1) does not offer minimum essential coverage to all its full-time employees
(and their dependents) for any month, and
(2) has at least one full-time employee certified to be allowed or paid a
premium assistance tax credit or a cost sharing reduction (IRC
§4980H(a)).
Note: Businesses with less than 50 employees are exempt from this provision
– i.e., no employer responsibility is imposed.
Example
XYZ Company has 92 full time employees in 2015 but does
not offer minimum essential coverage. Two of its full-time
employees enrolled in an insurance exchange and receive
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premium assistance tax credits. XYZ Company will be liable
for the penalty.
In this circumstance, the monthly penalty (actually an excise tax) imposed is
the product of:
(1) $166.67 ($2,000 divided by 12), multiplied by
(2) the number of full-time employees (not including the first 30 workers)
employed during such month.
Example
XYZ Company has 72 fulltime employees in 2015 and does
not offer its employees minimum essential coverage. As a result,
XYZ Company will a pay monthly penalty equal to
$7,000.14 which is the product of $166.67 times 42 (72 minus
30)
A penalty is also imposed on any employer, with an average of 50 or more
full-time employees during the preceding calendar year, that:
(1) does offer minimum essential coverage to all its full-time employees
(and their dependents) a eligible employer-sponsored plan for any month,
but
(2) has at least one full-time employee certified to be allowed or paid a
premium assistance tax credit or a cost sharing reduction (IRC
§4980H(b)).
In this alternative circumstance, the monthly penalty (actually an excise tax)
imposed is the product of:
(1) $250 ($3,000 divided by 12), multiplied by
(2) number of the full-time employees receiving a premium tax credit or
cost-sharing subsidy through an exchange for the month.
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However, this alternative penalty on offering employers is limited to $166.77
($2,000 per month divided by 12) and the number of all full-time employees
(not including the first 30 workers) employed during that month.
Example
In 20154, XYZ Company has 80 full-time employees and
while it offers health coverage to all, 5 employees are receiving
premium assistance tax credits through an exchange offered
plan. As a result, a $15,000 ($3,000 x 5 employees)
penalty is imposed on XYZ Company. However, this penalty
is limited by the failure to provide coverage penalty of
$100,000 ($2,000 x 50 full-time employees (80 full-time employees,
less 30)). Thus, XYZ’s monthly penalty is capped at
$15,000.
This provision was to apply to months beginning after December 31, 2013.
However, this provision was delayed until 2015 by Presidential announcement
(Notice 2013-45).
200+ Employees – Automatic Enrollment & Notice
PPAC §1511 & §1512 amend §18 of the Fair Labor Standards Act of 1938 to:
(1) require employers with more than 200 full-time employees to automatically
enroll new employees in a health care plan and provide notice
of the opportunity to opt-out of such coverage (PPAC §1511); and
(2) provide notice to employees about an exchange, the availability of a
tax credit for premium assistance, and the loss of an employer's contribution
to an employer-provided health benefit plan if the employee purchases
a plan through an exchange (PPAC §1512).
Note: If the employer plan’s share of the total allowed costs of benefits provided
under the plan is less than 60 percent of such costs, the employee may
be eligible for a premium assistance tax credit and cost sharing reduction.
Moreover, if the employee purchases a qualified health plan through an exchange,
the employee will lose the employer contribution (if any) to any
health benefits plan offered by the employer and all or a portion of such contribution
may be excludable from income for Federal income tax purposes.
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Amazingly, the law is silent regarding an effective date of this provision.
However, the intent appears to be that this provision was to become effective
in 2014. In any event, this provision also appears to be delayed until 2015 by
Presidential announcement (Notice 2013-45).
Employer Reporting of Coverage - §6056
PPAC §1514 requires large (50 or more employees) employers to file a report
with the Secretary of the Treasury on health insurance coverage provided to
their full-time employees. A penalty is imposed on employers who fail to provide
such report.
The report is required to contain:
(1) a certification as to whether such employers provide their full-time employees
(and their dependents) the opportunity to enroll in minimum essential
coverage under an eligible employer-sponsored plan;
(2) the length of any waiting period for such coverage;
(3) the months during which such coverage was available;
(4) the monthly premium for the lowest cost option in each of the enrollment
categories under the plan;
(5) the employer's share of the total allowed costs of benefits provided under
the plan; and
(6) identifying information about the employer and full-time employees.
This provision applies to periods beginning after December 31, 2013.
Postponement of Employer Reporting until 2015
In July 2013, the President delayed, for a year, the reporting requirement of
employers on qualifying employee health care coverage provided to their
full-time employees. As a result, the annual reporting and related penalty will
not be enforced until 2015. Shortly thereafter, the Internal Revenue Service
issued transition relief for 2014 for this delay in Notice 2013-45.
Comment: Due to the central role that employer information reporting plays
in determining which employers owe shared responsibility payments, a con24
sequence of the delayed reporting is that no employer shared responsibility
payments or penalty will be assessed for 2014. Supposedly, there is no effect
on other provisions of the Act.
Insurer Reporting Requirements - §6055
PPAC §1502 requires insurers (including self-insuring employers) that provide
minimum essential coverage to file informational returns providing identifying
information of covered individuals and the dates of coverage.
The information return is required to contain:
(1) the name, address and TIN of the primary insured and the name and TIN
of each other individual obtaining coverage under the policy,
(2) the dates during which such individual was covered under minimum essential
coverage during the calendar year,
(3) whether or not the coverage is a qualified health plan offered through an
exchange,
(4) the amount (if any) of any cost-sharing reduction or §36B premium tax
credit with respect to such coverage, and
(5) such other information as the Secretary may require.
PPAC §1502 also requires the IRS to send a notice to taxpayers who are not enrolled
in minimum essential coverage about services available through an exchange
operating in their state.
This provision is effective for calendar years beginning after 2013.
Summary of Benefits
PPAC §2715 requires the Secretary to develop standards for use by health insurers
in compiling and providing an accurate summary of benefits and explanation
of coverage for applicants, policyholders or certificate holders, and enrollees.
These standards must be in a uniform format, using language that is easily understood
by the average enrollee, and must include uniform definitions of standard
insurance and medical terms.
25

This provision is effective for calendar years beginning after 2013.
Small Business Health Insurance Expense Tax Credit - §45R
As amended by PPAC §1421, IRC §45R provides a sliding scale tax credit (as
part of the §38 general business credit) of up to 50% of nonelective contributions
the business makes on behalf of its employees for insurance premiums for
small employers with fewer than 25 employees and average annual wages of less
than $50,000 that purchase health insurance for their employees.
Note: Five-percent owners (as defined in §416) and 2% shareholders of S
corporations are counted as employees. However, leased employees are considered
employees.
The full credit is available to employers with 10 or fewer employees and average
annual wages of less than $25,000 (indexed for inflation after 2013). The credit is
reduced based on the number of employees over 10 and the excess of the employees'
average wages over $25,000. However, to be eligible for a tax credit, the
employer must contribute at least 50 percent of the total premium cost or 50
percent of a benchmark premium.
In 2010 through 2013, eligible employers can receive a small business tax credit
for up to 35 percent of their contribution toward the employee’s health insurance
premium. Tax-exempt small businesses meeting the above requirements are
eligible for tax credits of up to 25 percent of their contribution.
In 2014 and beyond, eligible employers who purchase coverage through an exchange
can receive a tax credit for two years of up to 50 percent of their contribution.
Tax-exempt small businesses meeting the above requirements are eligible
for tax credits of up to 35 percent of their contribution.
The IRS has a detailed “frequently asked questions” website on the small business
tax credit located at: http://www.irs.gov/newsroom/article/0,, ... 39,00.html .
This provision is effective with tax years beginning in 2010.
Tax on High-Cost Employer Plans - §4980I
PPAC §9001 levies a nondeductible excise tax of 40% on insurance companies
and plan administrators for the aggregate value of employer-sponsored health
insurance coverage for an employee (including any former employee, surviving
spouse or any other primary insured individual) that is above the threshold of
$10,200 for single coverage and $27,500 for family coverage in 2018.
Example
Mike is a single male age 40 and elects to be covered under
a fully-insured employer-provided health care policy having a
value of $15,200. The amount subject to the excise tax would
be $5,000 ($15,200 minus $10,200). Mike’s employer reports
$5,000 as taxable to the insurer who then calculates and
pays the $2,000 ($5,000 times 40%) tax to the IRS.
The threshold is indexed at CPI-U plus one percentage point in year 2019 and
CPI-U in years thereafter. An increase in the threshold amount of $1,650 for
singles and $3,450 for families is available for retired individuals age 55 and
older and for plans that cover employees engaged in high risk professions. This
provision also includes an adjustment for firms whose health costs are higher due
to the age or gender of their workers and adjusts the initial threshold if there is
unexpected high growth in premiums before 2018.
The tax applies to self-insured plans and plans sold in the group market, but not
to plans sold in the individual market (except for coverage eligible for the deduction
for self-employed individuals). The tax does not apply to stand-alone dental
and vision coverage. The tax applies to the amount of the premium in excess of
the threshold.
This provision is effective for tax years beginning after December 31, 2017.
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Fees on Insured & Self-Insured Health Plans - §4375
To finance a new Patient Centered Outcomes Research Institute and its funding
trust, PPAC §6301 creates IRC §4375 to impose a fee on issuers of specified
health insurance policies (see, IRC §4377 for definitions). PPAC §6301 also created
IRC §4376 to impose a similar fee on self-insured health plans (see, IRC
§4377 for definitions).
The fee is equal to the product of $2 ($1 in the case of policy years ending during
fiscal year 2013) multiplied by the average number of lives covered under the
policy.
This provision is effective with respect to policy years ending after September 31,
2012. For policy years beginning after Sept. 30, 2014, under both IRC §§ 4375
and 4376, the fee is subject to adjustment based on the percentage increase in
the most recent projected per capita amount of national health expenditures.
Inclusion of Health Coverage on W-2 - §6051
PPAC §9002 requires employers to disclose the value of the employee’s health
insurance coverage sponsored by the employer for each employee’s health insurance
coverage on the employee’s annual Form W-2.
This provision is effective for tax years beginning after December 31, 2010.
Cafeteria Plans - §125
Eligible Benefit - §125(f)
PPAC §1515 makes premiums for coverage under a qualified health plan offered
through an exchange a qualified benefit under a §125 cafeteria plan.
However, the provision applies only to cafeteria plans established by a qualified
employers (i.e., small employers, and, after 2017, large employers in
electing states) offering a choice of plans to all its full-time employees
through an exchange.
Note: A small employer is an employer who employed an average of at least
one, but not more than 100, employees during the preceding calendar year
and employs at least one employee on the first day of the plan year. Conversely,
a large employer is any employer who employed an average of more
than 100 employees in the preceding calendar year and employs at least one
employee on the first day of the plan year.
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This provision is effective for tax years beginning after December 31, 2013.
FSAs -§125(i) thru (k)
PPAC §9005, as amended by the Reconcilation Act §1403, limits the amount
of salary reduction contributions to health FSAs to $2,500 per year beginning
in 2013. The cap is indexed at CPI-U in subsequent years.
This provision is effective for tax years beginning after December 31, 2012.
Simple Cafeteria Plans for Small Businesses - §125(j) thru (l)
PPAC §9022 established Simple Cafeteria Plans that ease participation restrictions
so that small businesses can provide tax-free benefits to their employees.
Under this provision, self-employed individuals are included as
qualified employees.
The provision also exempts employers who make contributions for employees
under a simple cafeteria plan from:
(1) the pension plan nondiscrimination requirements applicable to highly
compensated and key employees, and
(2) the nondiscrimination requirements for certain §125 qualified benefits
offered such as group term life insurance, self-insured medical expense
reimbursement plan benefits, and §129 dependent care assistance.
This provision is effective for tax years beginning after December 31, 2010.
No Deduction for Medicare Part D Expenses - §139A
PPAC §9012 eliminates the deduction for the subsidy paid by the federal government
to employers who maintain prescription drug plans for their Medicare
Part D eligible retirees.
This provision is effective for tax years beginning after December 31, 2012.
Excise Tax on Tanning Services - §5000B
PPAC §10907 imposes a ten percent tax on amounts paid for indoor tanning services.
The tax is imposed on the patron of the indoor tanning salon but, it is the
salon owner who is required to collect the taxes and remit them to the IRS on a
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quarterly basis. Indoor tanning services are services that use an electronic product
with one of more ultraviolet lamps to induce skin tanning.
The tax is effective for services performed on or after July 1, 2010.
Annual Fee on Health Insurance Providers
PPAC §9010 imposes an annual fee on the health insurance sector. The amount
of the fee is $8.0 billion in 2014, $11.3 billion in years 2015-20
Elihu
 
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