We at Long Island Planning Group, Ltd. are committed to keeping you informed about health care reform and the Patient Protection and Affordable Care Act (PPACA). The PPACA has a 10 year implementation period. Some PPACA reforms become effective as early as September 23, 2010. This blog is intended to provide a summary of some of the immediate implications of the reform act. Insurance companies have begun mailing notices to policyholders informing them of the companies' filings for proposed future rate adjustments.
Below is a list of benefit and eligibility enhancements that become effective on September 23. It is advised that these changes be communicated to employees. Note that "grandfathered plans" may not need to immediately comply with provisions affecting adult preventive care, discrimination, claims appeals and access to physicians. The September 23 changes are:
1. Annual and lifetime dollar limits on network coverage are eliminated: Group health plans may no longer set lifetime limits on "essential health benefits."
2. Pre-existing condition limitations are waived for enrollees under age 19.
3. Dependents may remain on their parents' health plan until age 26 (some New York plans extend to age 29). If you have children in their 20's, or your employees do, you may want to consider adding such dependents to your plan.
4. There is no in-network cost-sharing for preventive care services. Plans will provide first dollar coverage for in-network preventive care.
5. Emergency services must be covered without prior authorization and treated as in-network.
6. Plan members must be allowed to designate a child's pediatrician as the primary care provider. Plans may not require authorization or referrals for a participating OB-GYN.
The PPACA contains information defining discrimination in health plans. Under these new non-discrimination rules, group plans may not discriminate in favor of highly compensated employees (under IRC Section 105h). The term "highly compensated" is defined as one of the five highest paid officers, a shareholder owning 10% of the value of the stock, and/or an employee among the highest paid 25% of the employees. This may mean the end of certain plan designs where executives have a benefit separate from other employees (executive carve-out). Groups with low participation may also be affected.
The PPACA provides a tax credit for employer paid premiums for qualified firms. From 2010 to 2013, small businesses with 25 or fewer employees and an average wage of $50,000 or less are eligible for premium tax credits (for two years) of up to 35% of their contribution. To qualify, the business must contribute at least 50% of premium based on the rate of a single employee. Employers with 10 or fewer employees and average wages of $25,000 or less will be eligible for the 35% credit. In 2014, the credit will increase to 50% of eligible employer contributions. Groups with 11-25 employees with average earnings of $25,001 to $50,000 will be subject to a phase-out of the credit.
The PPACA will affect a business's reporting requirements. Companies will be required to report the cost of the employee sponsored health coverage to their employees on IRS Form W2.
On a state level, the New York State Legislature passed S58099 on June 7, 2010. This notice provides group policyholders information, or "Advance Notice," about the insurers' filing for changes in premium rates for 2011. These filings are subject to review and approval by the New York State Insurance Department. The actual size of the increase will be released in a renewal letter approximately 60 days before renewal date. The total estimated percent increase includes multiple components: a basic increase or trend increase, an additional increase resulting from the cost of benefit enhancements required by the new PPACA, and the elimination of the New York State subsidy for small group mental health benefits (Timothy's Law).
If you have any questions regarding the contents of this blog or your health, life, or long term care needs, please do not hesitate to call us at 516-682-8400. You can e-mail us at risrael@optonline.net or visit our website at www.liplanning.com.
Monday, September 20, 2010
Thursday, May 13, 2010
CLASS Act Information
Below is information from the American Association of Long Term Care Insurance:
President Obama has signed into law comprehensive healthcare reform legislation that contains a program known as the Community Living Assistance Services and Supports Act (CLASS Act).
The American Association for Long-Term Care Insurance does not lobby legislative bodies. We are not paid by insurance companies. Our financial support primarily comes from insurance and financial professionals who are members. The mission of AALTCI is to inform and advocate for sound long-term care planning for all Americans and support our membership.
The passage of CLASS does not negate the need for private long-term care coverage in any way. While we have concerns about the long-term fiscal soundness of the CLASS plan, we are optimistic that the program will play a significant role in raising consumer awareness about the many issues surrounding long-term health care and the need to plan for the risk of needing this type of costly care.
Many of the details regarding the CLASS program are not yet defined and will be developed through Government regulation. The information below is designed to address what is known currently and to answer the most common questions being asked. We will make changes as new information becomes available.
What are the general provisions of the CLASS Act?Most of the important details for the CLASS program have not (yet) been defined. They will be developed by the U.S. Department of Health and Human Services (HSS) over the next few years.
But, simply stated, CLASS creates a new voluntary government program under which individuals will pay a monthly premium and will be eligible for modest benefits for their long-term care needs after five years of paying premiums.
While CLASS is often characterized as a long-term care program, it is primarily designed as a program to provide future assistance to the working disabled. Traditional long-term care insurance requires that applicants meet certain good-health requirements. CLASS will not have such health qualification requirements. The plan will be available on a guaranteed-issue basis.
When will the CLASS Act begin?While provisions of the CLASS Act become effective in 2011, there are so many details to be worked out that most experts don't expect the plan will actually become available until 2013. (The law says details are not due until the final months of 2012.
Costs have to be determined. Employers must be given sufficient time to educate employees and prepare to start withholding premiums from employee paychecks. Systems have to be in place to accept and keep track of monies withheld from participants.
Following implementation and withholding of the first payments from employees' paychecks, there is a five-year waiting period during which premiums must be paid before the participant becomes eligible to receive benefits. As a result, the earliest anyone could be receiving CLASS benefits may be as late as 2018.
Who will pay - will it cost me money?CLASS is intended to be a voluntary plan primarily offered by employers and paid for by employees. Or simply stated, money will be withheld from individual paychecks -- similar to the way Social Security (FICA) tax payments are withheld from paychecks.
There are provisions to make the CLASS offering available to others who may be self-employed or who may not have access to the plan through an employer. These also will have to be defined and systems established.
Congress made CLASS an "opt out" plan. This is an important point that people need to be aware of. Unlike Social Security or Medicare that are mandatory, CLASS is a "voluntary, opt-out" plan. If that sounds confusing, it is. Read the question below regarding "opt out".
What will the CLASS insurance cost?The monthly premium that will be charged by the government and deducted from paychecks has yet to be determined. There have been a wide range of estimates - and we will not speculate on the final cost.
Congress required that the CLASS plan should be fiscally sound for a 75-year period. The goal was to have the amounts paid by participants ultimately be sufficient to pay future benefits without the need for taxpayer support.
Because of the "guaranteed (health) issue" nature of the CLASS plan, many experts explain that those most likely to apply for CLASS policies will be individuals who are in poorer health. If this occurs (as anticipated) it will result in more people requiring benefits in future years. A fiscally sound plan will mean initial premiums could be high (as much as $1,500 to $2,500 a year per-person; twice that for a participating couple). Some say the costs could be higher. But we'll have to wait for the Department of Health and Human Services (HHS) to set the rates people will pay.
Premiums can be increased yearly to ensure that the CLASS fund is actuarially sound.
Remember that CLASS is not a contractual obligation. Future provisions (from costs to benefit eligibility) can be changed. And, of course, while the intent of the law is to avoid requiring taxpayer funds, CLASS could inevitably find itself underfunded the way Social Security and Medicare currently find themselves.
What if I'm currently age 55 or older?If you are 55 in 2010, you'll be 58 when CLASS finally starts enrolling participants. You'll have to be employed for at least three years (to age 61) and then pay until you are at least 63. Remember that the plan calls for payments for five years in order to ultimately be eligible to receive benefits (after meeting the qualifications).
If you are 55 and in good health, you should at least look into long-term care insurance. Here's a very important reason.
Insurers offer Good Health discounts and every few years the Association does a survey. In 2009, 46% of applicants between the ages of 50 and 59 qualified for the discount that is locked in so that even when your health changes, it is not lost. Only 38 percent of those between 60 and 69 qualified and 24 percent of those between 70 and 79. Waiting never pays.
So, do yourself a favor. Speak to a long-term care insurance professional. Get a quote for even some modest coverage.
What does "Opt Out" mean - and why is this very important?This is important information. Once details regarding CLASS are defined, your employer will provide information. Remember that CLASS will likely not become available until 2013. Information will likely be included as part of the company's annual employee benefits enrollment period. Your employer will give you the option to enroll (yes) or to decline participation (no).
Congress stipulated that employees must decline participation or "opt out". If you don't specifically say no, or "opt out" it will be considered that you have said "yes" and premium amounts will automatically be withdrawn and you will be paying into the plan.
Certainly much more information will be forthcoming because the last thing employers want is confused or angered employees. But, it is your responsibility to watch for and read information.
Explain the five-year waiting period before benefits begin. Once enrolled, participants must pay premiums for five years, after which they will be eligible to receive certain benefits for their long-term support and service needs. They must also have worked for at least three of those five years.
What coverage or benefits will be provided?While the exact benefits to be provided under the CLASS program are yet to be determined, here is some general information.
Remember that to be eligible for benefits, you must pay premiums for five years to be eligible to receive certain benefits for long-term support and service needs. The participant must have a functional impairment expected to last more than 90 days and which requires substantial assistance with two or three Activities of Daily Living, or has substantial cognitive impairment.
What if I already have long-term care insurance?First, it really is impossible for us to fairly evaluate the CLASS plan because currently there is no set price and no established benefit eligibility criteria. Chances are you'll be receiving information from your long-term care insurance provider or certainly can revisit the Association's website for information.
It's recommended you do not drop your coverage or make any changes.
Generally the highly limited nature of the long-term care benefits offered under CLASS, as well as what could be the rather high premiums for CLASS, will not be attractive to those who have already health qualified for individual or employer-sponsored long-term care insurance protection.
If you drop your coverage and decide to re-apply after final costs and provisions of CLASS are established, you may find yourself unable to health qualify. You'll certainly pay higher premiums becauses costs for long-term care insurance increase based on your age.
What if I do NOT have long-term care insurance currently? Here are some things to keep in mind.
It will be at least two years before CLASS is operational (2013) and another five years from that time benefore any benefits can be paid (2018).
CLASS is not a contractual obligation (the way private long-term care insurance is). The provisions of the plan can be changed at any point by Congress.
IMPORTANT IF YOU ARE HEALTHYCLASS will likely offer lower premiums to low-income individuals, and many in poor health will take advantage with the anticipation of benefits. As a result, those in good health (or with good incomes) will be subsidizing others. Private insurance is not based on income -- this type of 'subsidization' does not exist.
The government plan is very limited in what it will eventually pay ($50 or $75 per day is way below the cost for quality comprehensive care at home and certainly far less than the cost for care in an assisted living community or skilled nursing home setting).
PLUS, there are several advantages of private long-term care insurance offered on an individual basis or available through your employer.
Unlike CLASS you are not required to be employed or earn any specific level of wages to purchase protection and maintain coverage.
Unlike the CLASS program's 5-year waiting period, there are no minimum number of years an individual must pay premiums before benefits are payable.
Most private long-term care insurance policies provide a broad range of benefits not available with CLASS.
And, if CLASS is priced to be financially sound, it's very likely someone eligible for discounts available from private insurers to those in good health, will be able to purchase more coverage for fewer dollars.
How Will the CLASS Plan impact long-term care insurance sales? The following are the opinions of Jesse Slome, executive director of the American Association for Long-Term Care Insurance ... and frankly no one has a crystal ball about these things.
In the short term there will be a whole lot of confusion among consumers. And, confusion will give people a reason (albeit not a good one) to put off what is a very important decision. It's especially hard to talk about a CLASS plan when no prices (costs) have been established and no definitions for benefit qualification have been established.
But in time, all of this will be revealed. And consumers will have the information they need to make an educated and informed decision. I view CLASS as very similar to retirement savings. Some will only have Social Security.
Others don't want to depend on (or solely depend on) government programs. They have 401(ks), IRAs, Roth IRAs and company plans. These types of people will understand that CLASS provides a minimal benefit that won't give them the choice and control of their future that private long-term care insurance coverage provides. When they do, they will continue to purchase protection.
http://www.aaltci.org/long-term-care-insurance/learning-center/CLASS-Act.php/
President Obama has signed into law comprehensive healthcare reform legislation that contains a program known as the Community Living Assistance Services and Supports Act (CLASS Act).
The American Association for Long-Term Care Insurance does not lobby legislative bodies. We are not paid by insurance companies. Our financial support primarily comes from insurance and financial professionals who are members. The mission of AALTCI is to inform and advocate for sound long-term care planning for all Americans and support our membership.
The passage of CLASS does not negate the need for private long-term care coverage in any way. While we have concerns about the long-term fiscal soundness of the CLASS plan, we are optimistic that the program will play a significant role in raising consumer awareness about the many issues surrounding long-term health care and the need to plan for the risk of needing this type of costly care.
Many of the details regarding the CLASS program are not yet defined and will be developed through Government regulation. The information below is designed to address what is known currently and to answer the most common questions being asked. We will make changes as new information becomes available.
What are the general provisions of the CLASS Act?Most of the important details for the CLASS program have not (yet) been defined. They will be developed by the U.S. Department of Health and Human Services (HSS) over the next few years.
But, simply stated, CLASS creates a new voluntary government program under which individuals will pay a monthly premium and will be eligible for modest benefits for their long-term care needs after five years of paying premiums.
While CLASS is often characterized as a long-term care program, it is primarily designed as a program to provide future assistance to the working disabled. Traditional long-term care insurance requires that applicants meet certain good-health requirements. CLASS will not have such health qualification requirements. The plan will be available on a guaranteed-issue basis.
When will the CLASS Act begin?While provisions of the CLASS Act become effective in 2011, there are so many details to be worked out that most experts don't expect the plan will actually become available until 2013. (The law says details are not due until the final months of 2012.
Costs have to be determined. Employers must be given sufficient time to educate employees and prepare to start withholding premiums from employee paychecks. Systems have to be in place to accept and keep track of monies withheld from participants.
Following implementation and withholding of the first payments from employees' paychecks, there is a five-year waiting period during which premiums must be paid before the participant becomes eligible to receive benefits. As a result, the earliest anyone could be receiving CLASS benefits may be as late as 2018.
Who will pay - will it cost me money?CLASS is intended to be a voluntary plan primarily offered by employers and paid for by employees. Or simply stated, money will be withheld from individual paychecks -- similar to the way Social Security (FICA) tax payments are withheld from paychecks.
There are provisions to make the CLASS offering available to others who may be self-employed or who may not have access to the plan through an employer. These also will have to be defined and systems established.
Congress made CLASS an "opt out" plan. This is an important point that people need to be aware of. Unlike Social Security or Medicare that are mandatory, CLASS is a "voluntary, opt-out" plan. If that sounds confusing, it is. Read the question below regarding "opt out".
What will the CLASS insurance cost?The monthly premium that will be charged by the government and deducted from paychecks has yet to be determined. There have been a wide range of estimates - and we will not speculate on the final cost.
Congress required that the CLASS plan should be fiscally sound for a 75-year period. The goal was to have the amounts paid by participants ultimately be sufficient to pay future benefits without the need for taxpayer support.
Because of the "guaranteed (health) issue" nature of the CLASS plan, many experts explain that those most likely to apply for CLASS policies will be individuals who are in poorer health. If this occurs (as anticipated) it will result in more people requiring benefits in future years. A fiscally sound plan will mean initial premiums could be high (as much as $1,500 to $2,500 a year per-person; twice that for a participating couple). Some say the costs could be higher. But we'll have to wait for the Department of Health and Human Services (HHS) to set the rates people will pay.
Premiums can be increased yearly to ensure that the CLASS fund is actuarially sound.
Remember that CLASS is not a contractual obligation. Future provisions (from costs to benefit eligibility) can be changed. And, of course, while the intent of the law is to avoid requiring taxpayer funds, CLASS could inevitably find itself underfunded the way Social Security and Medicare currently find themselves.
What if I'm currently age 55 or older?If you are 55 in 2010, you'll be 58 when CLASS finally starts enrolling participants. You'll have to be employed for at least three years (to age 61) and then pay until you are at least 63. Remember that the plan calls for payments for five years in order to ultimately be eligible to receive benefits (after meeting the qualifications).
If you are 55 and in good health, you should at least look into long-term care insurance. Here's a very important reason.
Insurers offer Good Health discounts and every few years the Association does a survey. In 2009, 46% of applicants between the ages of 50 and 59 qualified for the discount that is locked in so that even when your health changes, it is not lost. Only 38 percent of those between 60 and 69 qualified and 24 percent of those between 70 and 79. Waiting never pays.
So, do yourself a favor. Speak to a long-term care insurance professional. Get a quote for even some modest coverage.
What does "Opt Out" mean - and why is this very important?This is important information. Once details regarding CLASS are defined, your employer will provide information. Remember that CLASS will likely not become available until 2013. Information will likely be included as part of the company's annual employee benefits enrollment period. Your employer will give you the option to enroll (yes) or to decline participation (no).
Congress stipulated that employees must decline participation or "opt out". If you don't specifically say no, or "opt out" it will be considered that you have said "yes" and premium amounts will automatically be withdrawn and you will be paying into the plan.
Certainly much more information will be forthcoming because the last thing employers want is confused or angered employees. But, it is your responsibility to watch for and read information.
Explain the five-year waiting period before benefits begin. Once enrolled, participants must pay premiums for five years, after which they will be eligible to receive certain benefits for their long-term support and service needs. They must also have worked for at least three of those five years.
What coverage or benefits will be provided?While the exact benefits to be provided under the CLASS program are yet to be determined, here is some general information.
Remember that to be eligible for benefits, you must pay premiums for five years to be eligible to receive certain benefits for long-term support and service needs. The participant must have a functional impairment expected to last more than 90 days and which requires substantial assistance with two or three Activities of Daily Living, or has substantial cognitive impairment.
What if I already have long-term care insurance?First, it really is impossible for us to fairly evaluate the CLASS plan because currently there is no set price and no established benefit eligibility criteria. Chances are you'll be receiving information from your long-term care insurance provider or certainly can revisit the Association's website for information.
It's recommended you do not drop your coverage or make any changes.
Generally the highly limited nature of the long-term care benefits offered under CLASS, as well as what could be the rather high premiums for CLASS, will not be attractive to those who have already health qualified for individual or employer-sponsored long-term care insurance protection.
If you drop your coverage and decide to re-apply after final costs and provisions of CLASS are established, you may find yourself unable to health qualify. You'll certainly pay higher premiums becauses costs for long-term care insurance increase based on your age.
What if I do NOT have long-term care insurance currently? Here are some things to keep in mind.
It will be at least two years before CLASS is operational (2013) and another five years from that time benefore any benefits can be paid (2018).
CLASS is not a contractual obligation (the way private long-term care insurance is). The provisions of the plan can be changed at any point by Congress.
IMPORTANT IF YOU ARE HEALTHYCLASS will likely offer lower premiums to low-income individuals, and many in poor health will take advantage with the anticipation of benefits. As a result, those in good health (or with good incomes) will be subsidizing others. Private insurance is not based on income -- this type of 'subsidization' does not exist.
The government plan is very limited in what it will eventually pay ($50 or $75 per day is way below the cost for quality comprehensive care at home and certainly far less than the cost for care in an assisted living community or skilled nursing home setting).
PLUS, there are several advantages of private long-term care insurance offered on an individual basis or available through your employer.
Unlike CLASS you are not required to be employed or earn any specific level of wages to purchase protection and maintain coverage.
Unlike the CLASS program's 5-year waiting period, there are no minimum number of years an individual must pay premiums before benefits are payable.
Most private long-term care insurance policies provide a broad range of benefits not available with CLASS.
And, if CLASS is priced to be financially sound, it's very likely someone eligible for discounts available from private insurers to those in good health, will be able to purchase more coverage for fewer dollars.
How Will the CLASS Plan impact long-term care insurance sales? The following are the opinions of Jesse Slome, executive director of the American Association for Long-Term Care Insurance ... and frankly no one has a crystal ball about these things.
In the short term there will be a whole lot of confusion among consumers. And, confusion will give people a reason (albeit not a good one) to put off what is a very important decision. It's especially hard to talk about a CLASS plan when no prices (costs) have been established and no definitions for benefit qualification have been established.
But in time, all of this will be revealed. And consumers will have the information they need to make an educated and informed decision. I view CLASS as very similar to retirement savings. Some will only have Social Security.
Others don't want to depend on (or solely depend on) government programs. They have 401(ks), IRAs, Roth IRAs and company plans. These types of people will understand that CLASS provides a minimal benefit that won't give them the choice and control of their future that private long-term care insurance coverage provides. When they do, they will continue to purchase protection.
http://www.aaltci.org/long-term-care-insurance/learning-center/CLASS-Act.php/
Monday, May 3, 2010
Small Business Health Care Tax Credit
Below is information posted by the IRS about the Small Business Health Care Tax Credit. Please let me know if you have any questions or concerns.
Small Business Health Care Tax Credit: Frequently Asked Questions
The new health reform law gives a tax credit to certain small employers that provide health care coverage to their employees, effective with tax years beginning in 2010. The following questions and answers provide information on the credit as it applies for 2010-2013, including information on transition relief for 2010. An enhanced version of the credit will be effective beginning in 2014. The new law, the Patient Protection and Affordable Care Act, was passed by Congress and was signed by President Obama on March 23, 2010.
Employers Eligible for the Credit
1. Which employers are eligible for the small employer health care tax credit?
A. Small employers that provide health care coverage to their employees and that meet certain requirements (“qualified employers”) generally are eligible for a Federal income tax credit for health insurance premiums they pay for certain employees. In order to be a qualified employer, (1) the employer must have fewer than 25 full-time equivalent employees (“FTEs”) for the tax year, (2) the average annual wages of its employees for the year must be less than $50,000 per FTE, and (3) the employer must pay the premiums under a “qualifying arrangement” described in Q/A-3. See Q/A-9 through 15 for further information on calculating FTEs and average annual wages and see Q/A-22 for information on anticipated transition relief for tax years beginning in 2010 with respect to the requirements for a qualifying arrangement.
2. Can a tax-exempt organization be a qualified employer?
A. Yes. The same definition of qualified employer applies to an organization described in Code section 501(c) that is exempt from tax under Code section 501(a). However, special rules apply in calculating the credit for a tax-exempt qualified employer. A governmental employer is not a qualified employer unless it is an organization described in Code section 501(c) that is exempt from tax under Code section 501(a). See Q/A-6.
Calculation of the Credit
3. What expenses are counted in calculating the credit?
A. Only premiums paid by the employer under an arrangement meeting certain requirements (a “qualifying arrangement”) are counted in calculating the credit. Under a qualifying arrangement, the employer pays premiums for each employee enrolled in health care coverage offered by the employer in an amount equal to a uniform percentage (not less than 50 percent) of the premium cost of the coverage. See Q/A-22 for information on transition relief for tax years beginning in 2010 with respect to the requirements for a qualifying arrangement.
If an employer pays only a portion of the premiums for the coverage provided to employees under the arrangement (with employees paying the rest), the amount of premiums counted in calculating the credit is only the portion paid by the employer. For example, if an employer pays 80 percent of the premiums for employees’ coverage (with employees paying the other 20 percent), the 80 percent premium amount paid by the employer counts in calculating the credit. For purposes of the credit (including the 50-percent requirement), any premium paid pursuant to a salary reduction arrangement under a section 125 cafeteria plan is not treated as paid by the employer.
In addition, the amount of an employer’s premium payments that counts for purposes of the credit is capped by the premium payments the employer would have made under the same arrangement if the average premium for the small group market in the State (or an area within the State) in which the employer offers coverage were substituted for the actual premium. If the employer pays only a portion of the premium for the coverage provided to employees (for example, under the terms of the plan the employer pays 80 percent of the premiums and the employees pay the other 20 percent), the premium amount that counts for purposes of the credit is the same portion (80 percent in the example) of the premiums that would have been paid for the coverage if the average premium for the small group market in the State were substituted for the actual premium.
4. What is the average premium for the small group market in a State (or an area within the State)?
A. The average premium for the small group market in a State (or an area within the State) will be determined by the Department of Health and Human Services (HHS) and published by the IRS. Publication of the average premium for the small group market on a State-by-State basis is expected to be posted on the IRS website by the end of April.
5. What is the maximum credit for a qualified employer (other than a tax-exempt employer)?
A. For tax years beginning in 2010 through 2013, the maximum credit is 35 percent of the employer’s premium expenses that count towards the credit, as described in Q/A-3.
Example. For the 2010 tax year, a qualified employer has 9 FTEs with average annual wages of $23,000 per FTE. The employer pays $72,000 in health care premiums for those employees (which does not exceed the average premium for the small group market in the employer's State) and otherwise meets the requirements for the credit. The credit for 2010 equals $25,200 (35% x $72,000).
6. What is the maximum credit for a tax-exempt qualified employer?
A. For tax years beginning in 2010 through 2013, the maximum credit for a tax-exempt qualified employer is 25 percent of the employer’s premium expenses that count towards the credit, as described in Q/A-3. However, the amount of the credit cannot exceed the total amount of income and Medicare (i.e., Hospital Insurance) tax the employer is required to withhold from employees’ wages for the year and the employer share of Medicare tax on employees’ wages.
Example. For the 2010 tax year, a qualified tax-exempt employer has 10 FTEs with average annual wages of $21,000 per FTE. The employer pays $80,000 in health care premiums for those employees (which does not exceed the average premium for the small group market in the employer's State) and otherwise meets the requirements for the credit. The total amount of the employer’s income tax and Medicare tax withholding plus the employer’s share of the Medicare tax equals $30,000 in 2010. The credit is calculated as follows:
(1) Initial amount of credit determined before any reduction: (25% x $80,000) = $20,000(2) Employer’s withholding and Medicare taxes: $30,000(3) Total 2010 tax credit is $20,000 (the lesser of $20,000 and $30,000).
7. How is the credit reduced if the number of FTEs exceeds 10 or average annual wages exceed $25,000?
A. If the number of FTEs exceeds 10 or if average annual wages exceed $25,000, the amount of the credit is reduced as follows (but not below zero). If the number of FTEs exceeds 10, the reduction is determined by multiplying the otherwise applicable credit amount by a fraction, the numerator of which is the number of FTEs in excess of 10 and the denominator of which is 15. If average annual wages exceed $25,000, the reduction is determined by multiplying the otherwise applicable credit amount by a fraction, the numerator of which is the amount by which average annual wages exceed $25,000 and the denominator of which is $25,000. In both cases, the result of the calculation is subtracted from the otherwise applicable credit to determine the credit to which the employer is entitled. For an employer with both more than 10 FTEs and average annual wages exceeding $25,000, the reduction is the sum of the amount of the two reductions. This sum may reduce the credit to zero for some employers with fewer than 25 FTEs and average annual wages of less than $50,000.
Example. For the 2010 tax year, a qualified employer has 12 FTEs and average annual wages of $30,000. The employer pays $96,000 in health care premiums for those employees (which does not exceed the average premium for the small group market in the employer's State) and otherwise meets the requirements for the credit.
The credit is calculated as follows:
(1) Initial amount of credit determined before any reduction: (35% x $96,000) = $33,600 (2) Credit reduction for FTEs in excess of 10: ($33,600 x 2/15) = $4,480(3) Credit reduction for average annual wages in excess of $25,000: ($33,600 x $5,000/$25,000) = $6,720(4) Total credit reduction: ($4,480 + $6,720) = $11,200(5) Total 2010 tax credit: ($33,600 – $11,200) = $22,400.
8. Can premiums paid by the employer in 2010, but before the new health reform legislation was enacted, be counted in calculating the credit?
A. Yes. In computing the credit for a tax year beginning in 2010, employers may count all premiums described in Q/A-3 for that tax year.
Determining FTEs and Average Annual Wages
9. How is the number of FTEs determined for purposes of the credit?
A. The number of an employer’s FTEs is determined by dividing (1) the total hours for which the employer pays wages to employees during the year (but not more than 2,080 hours for any employee) by (2) 2,080. The result, if not a whole number, is then rounded to the next lowest whole number. See Q/A-12 through 14 for information on which employees are not counted for purposes of determining FTEs.
Example. For the 2010 tax year, an employer pays 5 employees wages for 2,080 hours each, 3 employees wages for 1,040 hours each, and 1 employee wages for 2,300 hours.
The employer’s FTEs would be calculated as follows:
(1) Total hours not exceeding 2,080 per employee is the sum of:
a. 10,400 hours for the 5 employees paid for 2,080 hours each (5 x 2,080)b. 3,120 hours for the 3 employees paid for 1,040 hours each (3 x 1,040)c. 2,080 hours for the 1 employee paid for 2,300 hours (lesser of 2,300 and 2,080)
These add up to 15,600 hours
(2) FTEs: 7 (15,600 divided by 2,080 = 7.5, rounded to the next lowest whole number) 10. How is the amount of average annual wages determined?
A. The amount of average annual wages is determined by first dividing (1) the total wages paid by the employer to employees during the employer’s tax year by (2) the number of the employer’s FTEs for the year. The result is then rounded down to the nearest $1,000 (if not otherwise a multiple of $1,000). For this purpose, wages means wages as defined for FICA purposes (without regard to the wage base limitation). See Q/A-12 through 14 for information on which employees are not counted as employees for purposes of determining the amount of average annual wages. Example. For the 2010 tax year, an employer pays $224,000 in wages and has 10 FTEs.
The employer’s average annual wages would be: $22,000 ($224,000 divided by 10 = $22,400, rounded down to the nearest $1,000)
11. Can an employer with 25 or more employees qualify for the credit if some of its employees are part-time?
A. Yes. Because the limitation on the number of employees is based on FTEs, an employer with 25 or more employees could qualify for the credit if some of its employees work part-time. For example, an employer with 46 half-time employees (meaning they are paid wages for 1,040 hours) has 23 FTEs and therefore may qualify for the credit.
12. Are seasonal workers counted in determining the number of FTEs and the amount of average annual wages?
A. Generally, no. Seasonal workers are disregarded in determining FTEs and average annual wages unless the seasonal worker works for the employer on more than 120 days during the tax year.
13. If an owner of a business also provides services to it, does the owner count as an employee?
A. Generally, no. A sole proprietor, a partner in a partnership, a shareholder owning more than two percent of an S corporation, and any owner of more than five percent of other businesses are not considered employees for purposes of the credit. Thus, the wages or hours of these business owners and partners are not counted in determining either the number of FTEs or the amount of average annual wages, and premiums paid on their behalf are not counted in determining the amount of the credit.
14. Do family members of a business owner who work for the business count as employees?
A. Generally, no. A family member of any of the business owners or partners listed in Q/A-13, or a member of such a business owner’s or partner’s household, is not considered an employee for purposes of the credit. Thus, neither their wages nor their hours are counted in determining the number of FTEs or the amount of average annual wages, and premiums paid on their behalf are not counted in determining the amount of the credit. For this purpose, a family member is defined as a child (or descendant of a child); a sibling or step-sibling; a parent (or ancestor of a parent); a step-parent; a niece or nephew; an aunt or uncle; or a son-in-law, daughter- in-law, father-in-law, mother-in-law, brother-in-law or sister-in-law.
15. How is eligibility for the credit determined if the employer is a member of a controlled group or an affiliated service group?
A. Members of a controlled group (e.g., businesses with the same owners) or an affiliated service group (e.g., related businesses of which one performs services for the other) are treated as a single employer for purposes of the credit. Thus, for example, all employees of the controlled group or affiliated service group, and all wages paid to employees by the controlled group or affiliated service group, are counted in determining whether any member of the controlled group or affiliated service group is a qualified employer. Rules for determining whether an employer is a member of a controlled group or an affiliated service group are provided under Code section 414(b), (c), (m), and (o).
How to Claim the Credit
16. How does an employer claim the credit?
A. The credit is claimed on the employer’s annual income tax return. For a tax-exempt employer, the IRS will provide further information on how to claim the credit.
17. Can an employer (other than a tax-exempt employer) claim the credit if it has no taxable income for the year?
A. Generally, no. Except in the case of a tax-exempt employer, the credit for a year offsets only an employer’s actual income tax liability (or alternative minimum tax liability) for the year. However, as a general business credit, an unused credit amount can generally be carried back one year and carried forward 20 years. Because an unused credit amount cannot be carried back to a year before the effective date of the credit, though, an unused credit amount for 2010 can only be carried forward.
18. Can a tax-exempt employer claim the credit if it has no taxable income for the year?
A. Yes. For a tax-exempt employer, the credit is a refundable credit, so that even if the employer has no taxable income, the employer may receive a refund (so long as it does not exceed the income tax withholding and Medicare tax liability, as discussed in Q/A-6).
19. Can the credit be reflected in determining estimated tax payments for a year?
A. Yes. The credit can be reflected in determining estimated tax payments for the year to which the credit applies in accordance with regular estimated tax rules.
20. Does taking the credit affect an employer’s deduction for health insurance premiums?
A. Yes. In determining the employer’s deduction for health insurance premiums, the amount of premiums that can be deducted is reduced by the amount of the credit.
21. May an employer reduce employment tax payments (i.e., withheld income tax, social security tax, and Medicare tax) during the year in anticipation of the credit?
A. No. The credit applies against income tax, not employment taxes.
Anticipated Transition Relief for Tax Years Beginning in 2010
22. Is it expected that any transition relief will be provided for tax years beginning in 2010 to make it easier for taxpayers to meet the requirements for a qualifying arrangement?
A. Yes. The IRS and Treasury intend to issue guidance that will provide that, for tax years beginning in 2010, the following transition relief applies with respect to the requirements for a qualifying arrangement described in Q/A-3:
(a) An employer that pays at least 50% of the premium for each employee enrolled in coverage offered to employees by the employer will not fail to maintain a qualifying arrangement merely because the employer does not pay a uniform percentage of the premium for each such employee. Accordingly, if the employer otherwise satisfies the requirements for the credit described above, it will qualify for the credit even though the percentage of the premium it pays is not uniform for all such employees.
(b) The requirement that the employer pay at least 50% of the premium for an employee applies to the premium for single (employee-only) coverage for the employee. Therefore, if the employee is receiving single coverage, the employer satisfies the 50% requirement with respect to the employee if it pays at least 50% of the premium for that coverage. If the employee is receiving coverage that is more expensive than single coverage (such as family or self-plus-one coverage), the employer satisfies the 50% requirement with respect to the employee if the employer pays an amount of the premium for such coverage that is no less than 50% of the premium for single coverage for that employee (even if it is less than 50% of the premium for the coverage the employee is actually receiving).
http://www.irs.gov/newsroom/article/0,,id=220839,00.html
Small Business Health Care Tax Credit: Frequently Asked Questions
The new health reform law gives a tax credit to certain small employers that provide health care coverage to their employees, effective with tax years beginning in 2010. The following questions and answers provide information on the credit as it applies for 2010-2013, including information on transition relief for 2010. An enhanced version of the credit will be effective beginning in 2014. The new law, the Patient Protection and Affordable Care Act, was passed by Congress and was signed by President Obama on March 23, 2010.
Employers Eligible for the Credit
1. Which employers are eligible for the small employer health care tax credit?
A. Small employers that provide health care coverage to their employees and that meet certain requirements (“qualified employers”) generally are eligible for a Federal income tax credit for health insurance premiums they pay for certain employees. In order to be a qualified employer, (1) the employer must have fewer than 25 full-time equivalent employees (“FTEs”) for the tax year, (2) the average annual wages of its employees for the year must be less than $50,000 per FTE, and (3) the employer must pay the premiums under a “qualifying arrangement” described in Q/A-3. See Q/A-9 through 15 for further information on calculating FTEs and average annual wages and see Q/A-22 for information on anticipated transition relief for tax years beginning in 2010 with respect to the requirements for a qualifying arrangement.
2. Can a tax-exempt organization be a qualified employer?
A. Yes. The same definition of qualified employer applies to an organization described in Code section 501(c) that is exempt from tax under Code section 501(a). However, special rules apply in calculating the credit for a tax-exempt qualified employer. A governmental employer is not a qualified employer unless it is an organization described in Code section 501(c) that is exempt from tax under Code section 501(a). See Q/A-6.
Calculation of the Credit
3. What expenses are counted in calculating the credit?
A. Only premiums paid by the employer under an arrangement meeting certain requirements (a “qualifying arrangement”) are counted in calculating the credit. Under a qualifying arrangement, the employer pays premiums for each employee enrolled in health care coverage offered by the employer in an amount equal to a uniform percentage (not less than 50 percent) of the premium cost of the coverage. See Q/A-22 for information on transition relief for tax years beginning in 2010 with respect to the requirements for a qualifying arrangement.
If an employer pays only a portion of the premiums for the coverage provided to employees under the arrangement (with employees paying the rest), the amount of premiums counted in calculating the credit is only the portion paid by the employer. For example, if an employer pays 80 percent of the premiums for employees’ coverage (with employees paying the other 20 percent), the 80 percent premium amount paid by the employer counts in calculating the credit. For purposes of the credit (including the 50-percent requirement), any premium paid pursuant to a salary reduction arrangement under a section 125 cafeteria plan is not treated as paid by the employer.
In addition, the amount of an employer’s premium payments that counts for purposes of the credit is capped by the premium payments the employer would have made under the same arrangement if the average premium for the small group market in the State (or an area within the State) in which the employer offers coverage were substituted for the actual premium. If the employer pays only a portion of the premium for the coverage provided to employees (for example, under the terms of the plan the employer pays 80 percent of the premiums and the employees pay the other 20 percent), the premium amount that counts for purposes of the credit is the same portion (80 percent in the example) of the premiums that would have been paid for the coverage if the average premium for the small group market in the State were substituted for the actual premium.
4. What is the average premium for the small group market in a State (or an area within the State)?
A. The average premium for the small group market in a State (or an area within the State) will be determined by the Department of Health and Human Services (HHS) and published by the IRS. Publication of the average premium for the small group market on a State-by-State basis is expected to be posted on the IRS website by the end of April.
5. What is the maximum credit for a qualified employer (other than a tax-exempt employer)?
A. For tax years beginning in 2010 through 2013, the maximum credit is 35 percent of the employer’s premium expenses that count towards the credit, as described in Q/A-3.
Example. For the 2010 tax year, a qualified employer has 9 FTEs with average annual wages of $23,000 per FTE. The employer pays $72,000 in health care premiums for those employees (which does not exceed the average premium for the small group market in the employer's State) and otherwise meets the requirements for the credit. The credit for 2010 equals $25,200 (35% x $72,000).
6. What is the maximum credit for a tax-exempt qualified employer?
A. For tax years beginning in 2010 through 2013, the maximum credit for a tax-exempt qualified employer is 25 percent of the employer’s premium expenses that count towards the credit, as described in Q/A-3. However, the amount of the credit cannot exceed the total amount of income and Medicare (i.e., Hospital Insurance) tax the employer is required to withhold from employees’ wages for the year and the employer share of Medicare tax on employees’ wages.
Example. For the 2010 tax year, a qualified tax-exempt employer has 10 FTEs with average annual wages of $21,000 per FTE. The employer pays $80,000 in health care premiums for those employees (which does not exceed the average premium for the small group market in the employer's State) and otherwise meets the requirements for the credit. The total amount of the employer’s income tax and Medicare tax withholding plus the employer’s share of the Medicare tax equals $30,000 in 2010. The credit is calculated as follows:
(1) Initial amount of credit determined before any reduction: (25% x $80,000) = $20,000(2) Employer’s withholding and Medicare taxes: $30,000(3) Total 2010 tax credit is $20,000 (the lesser of $20,000 and $30,000).
7. How is the credit reduced if the number of FTEs exceeds 10 or average annual wages exceed $25,000?
A. If the number of FTEs exceeds 10 or if average annual wages exceed $25,000, the amount of the credit is reduced as follows (but not below zero). If the number of FTEs exceeds 10, the reduction is determined by multiplying the otherwise applicable credit amount by a fraction, the numerator of which is the number of FTEs in excess of 10 and the denominator of which is 15. If average annual wages exceed $25,000, the reduction is determined by multiplying the otherwise applicable credit amount by a fraction, the numerator of which is the amount by which average annual wages exceed $25,000 and the denominator of which is $25,000. In both cases, the result of the calculation is subtracted from the otherwise applicable credit to determine the credit to which the employer is entitled. For an employer with both more than 10 FTEs and average annual wages exceeding $25,000, the reduction is the sum of the amount of the two reductions. This sum may reduce the credit to zero for some employers with fewer than 25 FTEs and average annual wages of less than $50,000.
Example. For the 2010 tax year, a qualified employer has 12 FTEs and average annual wages of $30,000. The employer pays $96,000 in health care premiums for those employees (which does not exceed the average premium for the small group market in the employer's State) and otherwise meets the requirements for the credit.
The credit is calculated as follows:
(1) Initial amount of credit determined before any reduction: (35% x $96,000) = $33,600 (2) Credit reduction for FTEs in excess of 10: ($33,600 x 2/15) = $4,480(3) Credit reduction for average annual wages in excess of $25,000: ($33,600 x $5,000/$25,000) = $6,720(4) Total credit reduction: ($4,480 + $6,720) = $11,200(5) Total 2010 tax credit: ($33,600 – $11,200) = $22,400.
8. Can premiums paid by the employer in 2010, but before the new health reform legislation was enacted, be counted in calculating the credit?
A. Yes. In computing the credit for a tax year beginning in 2010, employers may count all premiums described in Q/A-3 for that tax year.
Determining FTEs and Average Annual Wages
9. How is the number of FTEs determined for purposes of the credit?
A. The number of an employer’s FTEs is determined by dividing (1) the total hours for which the employer pays wages to employees during the year (but not more than 2,080 hours for any employee) by (2) 2,080. The result, if not a whole number, is then rounded to the next lowest whole number. See Q/A-12 through 14 for information on which employees are not counted for purposes of determining FTEs.
Example. For the 2010 tax year, an employer pays 5 employees wages for 2,080 hours each, 3 employees wages for 1,040 hours each, and 1 employee wages for 2,300 hours.
The employer’s FTEs would be calculated as follows:
(1) Total hours not exceeding 2,080 per employee is the sum of:
a. 10,400 hours for the 5 employees paid for 2,080 hours each (5 x 2,080)b. 3,120 hours for the 3 employees paid for 1,040 hours each (3 x 1,040)c. 2,080 hours for the 1 employee paid for 2,300 hours (lesser of 2,300 and 2,080)
These add up to 15,600 hours
(2) FTEs: 7 (15,600 divided by 2,080 = 7.5, rounded to the next lowest whole number) 10. How is the amount of average annual wages determined?
A. The amount of average annual wages is determined by first dividing (1) the total wages paid by the employer to employees during the employer’s tax year by (2) the number of the employer’s FTEs for the year. The result is then rounded down to the nearest $1,000 (if not otherwise a multiple of $1,000). For this purpose, wages means wages as defined for FICA purposes (without regard to the wage base limitation). See Q/A-12 through 14 for information on which employees are not counted as employees for purposes of determining the amount of average annual wages. Example. For the 2010 tax year, an employer pays $224,000 in wages and has 10 FTEs.
The employer’s average annual wages would be: $22,000 ($224,000 divided by 10 = $22,400, rounded down to the nearest $1,000)
11. Can an employer with 25 or more employees qualify for the credit if some of its employees are part-time?
A. Yes. Because the limitation on the number of employees is based on FTEs, an employer with 25 or more employees could qualify for the credit if some of its employees work part-time. For example, an employer with 46 half-time employees (meaning they are paid wages for 1,040 hours) has 23 FTEs and therefore may qualify for the credit.
12. Are seasonal workers counted in determining the number of FTEs and the amount of average annual wages?
A. Generally, no. Seasonal workers are disregarded in determining FTEs and average annual wages unless the seasonal worker works for the employer on more than 120 days during the tax year.
13. If an owner of a business also provides services to it, does the owner count as an employee?
A. Generally, no. A sole proprietor, a partner in a partnership, a shareholder owning more than two percent of an S corporation, and any owner of more than five percent of other businesses are not considered employees for purposes of the credit. Thus, the wages or hours of these business owners and partners are not counted in determining either the number of FTEs or the amount of average annual wages, and premiums paid on their behalf are not counted in determining the amount of the credit.
14. Do family members of a business owner who work for the business count as employees?
A. Generally, no. A family member of any of the business owners or partners listed in Q/A-13, or a member of such a business owner’s or partner’s household, is not considered an employee for purposes of the credit. Thus, neither their wages nor their hours are counted in determining the number of FTEs or the amount of average annual wages, and premiums paid on their behalf are not counted in determining the amount of the credit. For this purpose, a family member is defined as a child (or descendant of a child); a sibling or step-sibling; a parent (or ancestor of a parent); a step-parent; a niece or nephew; an aunt or uncle; or a son-in-law, daughter- in-law, father-in-law, mother-in-law, brother-in-law or sister-in-law.
15. How is eligibility for the credit determined if the employer is a member of a controlled group or an affiliated service group?
A. Members of a controlled group (e.g., businesses with the same owners) or an affiliated service group (e.g., related businesses of which one performs services for the other) are treated as a single employer for purposes of the credit. Thus, for example, all employees of the controlled group or affiliated service group, and all wages paid to employees by the controlled group or affiliated service group, are counted in determining whether any member of the controlled group or affiliated service group is a qualified employer. Rules for determining whether an employer is a member of a controlled group or an affiliated service group are provided under Code section 414(b), (c), (m), and (o).
How to Claim the Credit
16. How does an employer claim the credit?
A. The credit is claimed on the employer’s annual income tax return. For a tax-exempt employer, the IRS will provide further information on how to claim the credit.
17. Can an employer (other than a tax-exempt employer) claim the credit if it has no taxable income for the year?
A. Generally, no. Except in the case of a tax-exempt employer, the credit for a year offsets only an employer’s actual income tax liability (or alternative minimum tax liability) for the year. However, as a general business credit, an unused credit amount can generally be carried back one year and carried forward 20 years. Because an unused credit amount cannot be carried back to a year before the effective date of the credit, though, an unused credit amount for 2010 can only be carried forward.
18. Can a tax-exempt employer claim the credit if it has no taxable income for the year?
A. Yes. For a tax-exempt employer, the credit is a refundable credit, so that even if the employer has no taxable income, the employer may receive a refund (so long as it does not exceed the income tax withholding and Medicare tax liability, as discussed in Q/A-6).
19. Can the credit be reflected in determining estimated tax payments for a year?
A. Yes. The credit can be reflected in determining estimated tax payments for the year to which the credit applies in accordance with regular estimated tax rules.
20. Does taking the credit affect an employer’s deduction for health insurance premiums?
A. Yes. In determining the employer’s deduction for health insurance premiums, the amount of premiums that can be deducted is reduced by the amount of the credit.
21. May an employer reduce employment tax payments (i.e., withheld income tax, social security tax, and Medicare tax) during the year in anticipation of the credit?
A. No. The credit applies against income tax, not employment taxes.
Anticipated Transition Relief for Tax Years Beginning in 2010
22. Is it expected that any transition relief will be provided for tax years beginning in 2010 to make it easier for taxpayers to meet the requirements for a qualifying arrangement?
A. Yes. The IRS and Treasury intend to issue guidance that will provide that, for tax years beginning in 2010, the following transition relief applies with respect to the requirements for a qualifying arrangement described in Q/A-3:
(a) An employer that pays at least 50% of the premium for each employee enrolled in coverage offered to employees by the employer will not fail to maintain a qualifying arrangement merely because the employer does not pay a uniform percentage of the premium for each such employee. Accordingly, if the employer otherwise satisfies the requirements for the credit described above, it will qualify for the credit even though the percentage of the premium it pays is not uniform for all such employees.
(b) The requirement that the employer pay at least 50% of the premium for an employee applies to the premium for single (employee-only) coverage for the employee. Therefore, if the employee is receiving single coverage, the employer satisfies the 50% requirement with respect to the employee if it pays at least 50% of the premium for that coverage. If the employee is receiving coverage that is more expensive than single coverage (such as family or self-plus-one coverage), the employer satisfies the 50% requirement with respect to the employee if the employer pays an amount of the premium for such coverage that is no less than 50% of the premium for single coverage for that employee (even if it is less than 50% of the premium for the coverage the employee is actually receiving).
http://www.irs.gov/newsroom/article/0,,id=220839,00.html
Monday, March 29, 2010
Health Care Reform Reconciliation Bill's Key Components
I would like to take this opportunity to provide you with a summary of the key components of the Health Care Reform Reconciliation Bill. I expect that given the number of years that it will take to fully rollout these reforms, there will continue to be changes to the legislation. I will keep you informed of important modifications during this process.
Providing recipients in the doughnut hole with a 50% discount on brand name drugs. Employer health plans will be prohibited from rescinding or canceling health coverage, except in case of fraud. Employer-provided coverage will be required to eliminate lifetime limits on essential benefits. The employer’s group health plan will be required to eliminate the pre-existing condition exclusions for children (2010) and adults (2014). The plans also have to eliminate annual limits on essential benefits coverage for adults. Employers will be required to eliminate waiting periods beyond 90 days when enrolling employees in a group health plan. No later than March 1, 2013, employers will be required to give a notice, "free choice vouchers”, to their employees that they may be eligible to participate in one of the state-based health-insurance exchanges. Employees with incomes below 400% of the Federal Poverty Level will contribute no more then 8-9.8% of income. Penalties will be assessed on employers with 50 or more employees who do not offer coverage to their employees. The fine of $2,000 per full-time employee will be assessed if even one-employee obtains a federal subsidy to buy health coverage from one of the new state-based health-insurance exchanges. The first 30 employees are exempt from the calculation of the penalty. By 2014, the Act requires states to create health-insurance exchanges, which would offer four different levels of qualified health insurance plans. It also would mandate individuals at this time to purchase coverage and provide subsidies for certain individuals to do so.
The current Bill will:
- Mandate that everyone must have insurance or pay a penalty of $95 in 2014, or up to 1% of income, whichever is greater. This will rise to $695 in 2016 or 2.5% of income. The penalties will be capped at $2,250.
- Result in more than 30 million additional people becoming insured.
- Provide for subsidized coverage for those with low earnings. Incomes of $14,404 to $43,320 for an individual and $29,526 to $88,200 for a family of four will be eligible for a sliding scale subsidy. The premium for a family of 4 earning $44,075 is to be no more than 4% of income ($1,323). The premium for a family of 4 earning $88,200 is to be no more than 9.5% of income ($8,379).
- Make cuts to Medicare Advantage Plans and change their payment formula.
- Make many changes to the way insurance companies do business including waiving pre-existing conditions limitations and encouraging preventive medicine.
- Make available a Long Term Care Insurance program. CLASS will provide a voluntary, guaranteed issue benefit.
Many of these elements are phased in over the next eight years. Those that are most immediate and are expected to occur in 2010 are:
- Business with fewer that 25 employees and average wages of less than $50,000 could qualify for a tax credit of up to 35% of the cost of employees’ premiums.
- Dependant coverage for children will continue until age 26. (Note that NY currently has Age 29 provisions.)
- Creation of a temporary reinsurance program to provide coverage for retirees over 55 who are not eligible for Medicare.
- Creation of a temporary national high risk insurance pool. Those with preexisting conditions who have been uninsured for 6 months will be eligible.
- Prohibition of lifetime limits on benefit payments.
The real impact on the health insurance system will not occur until the year 2014. During the interim, there will be a phase-in of additional new taxes that will provide added government revenue to pay for these changes.
Three significant changes occurring by 2014 are:
- Insurers will be required to accept all applicants.
- Tax credits to help pay premiums will start flowing to middle-class working families. Help with co-payments and deductibles will be available.
- Insurance exchanges will be created to help administer subsidies for those individuals that require them.
Issues affecting Seniors:
Tax implications:
- Individuals with adjusted modified gross income over $200,000 and joint filers with over $250,000, will be required to pay a Medicare surtax of 3.8% on investment and other passive income, including rents, interest, dividends, royalties, capital gains and income from annuities.
- Individuals with adjusted modified gross income over $200,000 and joint filers with over $250,000 will pay a Medicare payroll tax of 2.35% – an increase of 0.9%.
- The availability of a Long Term Care Insurance program. CLASS will provide a guaranteed issue LTCI for Home Care and Nursing Care. This will be a voluntary option.
- Reduced payments to Medicare Advantage Plans (Medicare C).
- The threshold for claiming itemized tax documentation for medical expenses rises from 7.5% to 10% of adjusted gross income. Seniors can still deduct medical expenses above 7.5% through 2016.
Issues affecting Employers:
Flexible Spending
- Over-the-counter medicines will no longer be eligible for purchase with funds from Flexible Spending Accounts, Health Savings Accounts or Health Reimbursement Arrangements, unless a prescription is provided. The penalty for use of funds from a Health Savings Account for non-qualified medical expenses will increase - doubling the additional tax on these types of withdrawals from 10% to 20% for anyone under the age of 65.
- A statutory cap of $2,500 will be placed on the amount of funds an employee can save in a Flexible Spending Account. The limit will be adjusted annually in accordance with the U.S. Consumer Price Index.
Tax Implications for Business
- The 35% tax credit that goes into effect in 2010 for businesses with fewer than 25 employees and average wages of less than $50,000 increases to up to 50% of the cost of employees’ premiums.
- Excise tax on high-value health plans; a 40% excise tax will be applied to the excess value of a health plan above a statutory threshold. For most health plans, the threshold in the law will be established at $10,200 for individual health plans and $27,500 for family coverage. The threshold for the new excise tax will be adjusted annually for general inflation.
- An employer’s deduction for retiree prescription drug coverage is disallowed to the extent the employer receives the Retiree Drug Subsidy for providing coverage that is as good as or better than Medicare Part D coverage.
- Employers who employ more than 200 employees must automatically enroll new full-time employees in coverage. Employers must also provide employees with an opportunity to opt-out of coverage. Clarification on the effective date of this provision is forthcoming.
- A health plan W-2 reporting requirement will be imposed, requiring employers to report the aggregate value of medical benefits, vision, dental and supplemental insurance coverage. It is expected that this requirement would apply to Forms W-2 for the year 2011 that are made available in January 2012.
- Employers who provides coverage will pay either: an “assessment” of $3,000 for each employee who qualifies for subsidized coverage from an exchange either because the employer pays less than 60% of the full actuarial value of the coverage provided or because the employee’s cost is greater than 9.8% of their adjusted gross income; or $2,000 per full-time employee, whichever is less.
As mentioned, I will to continue to keep you updated about any modifications in our health care system. Please feel free to e-mail me at Risrael@optonline.net or call me at 516-682-8400 with any questions regarding this legislation or any of your insurance needs. You can also check my website at www.liplanning.com.
Thursday, March 25, 2010
COBRA Subsidy Extended Again
On March 2, 2010, President Obama signed legislation that once again extends the eligibility period for the COBRA subsidy provided in the American Recovery and Reinvestment Act (ARRA). The Temporary Extension Act of 2010, H.R. 4691, extends the eligibility date for the 65% COBRA subsidy by an additional month, from February 28, 2010 to March 31, 2010.
As originally enacted, an assistance eligible individual was one who was involuntarily terminated between September 1, 2008 and December 31, 2009. In December 2009, the eligibility date was extended to February 28, 2010 and the subsidy period was increased from 9 months to 15 months. The eligibility date has now been extended to March 31, 2010 and the subsidy period remains at 15 months.
For more information on the Temporary Extension Act of 2010, visti the U.S. Department of Labor at http://www.dol.gov/ebsa/cobra.html
As originally enacted, an assistance eligible individual was one who was involuntarily terminated between September 1, 2008 and December 31, 2009. In December 2009, the eligibility date was extended to February 28, 2010 and the subsidy period was increased from 9 months to 15 months. The eligibility date has now been extended to March 31, 2010 and the subsidy period remains at 15 months.
For more information on the Temporary Extension Act of 2010, visti the U.S. Department of Labor at http://www.dol.gov/ebsa/cobra.html
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