OK, PPACA (Obamacare) is now the law of the land. No more questions, since the US Supreme Court has so ruled. (The frivolous acts to “repeal” are just that. ) But, there are still plenty of questions- starting with the regulations that will be written to govern how it’s enforced – and how will the IRS deal with its new obligations under the law.
You see, the IRS is responsible for the administration of the tax breaks and incentives, as well as the penalties that are part of this law. It’s a good guess that about 2700 new employees will have to be hired to deal with these obligations- maybe even more, and spend about $ 880 million through next year to do so.
Business will have to prove to the IRS that it offers the proper health care insurance for its employees or have a valid exemption from its requirements. Middle class folks (some 20 million or so) will obtain a tax credit that could average about $ 4K per family, when they pay for their insurance (if their employers don’t provide same).
And, those that fail to obtain insurance (about 2% of Americans, at the most) will be required to pay a penalty- which will scale from $ 95 up to $ 695 for each uninsured adult or scale from 1% to 2.5% of taxable income (whichever is higher) by 2016- up to a maximum of $ 12500 per annum. Except…. The IRS is NOT empowered (yet) to seize bank account or garnish wages to collect the penalty- nor does interest accrue for unpaid penalties. (Those that owe will not be able to obtain refunds, either- which are normally sent to more than ¾ of the US taxpayers.)
How will you and I prove we have insurance? I don’t have a clue (nor does the IRS- yet)! But, my guess is will be yet another form for us to fill out. We’d fill out the information and the IRS will verify its accuracy. If everything is kosher, we’re done. If not, expect a threatening letter from the IRS.
But, what about the provisions of the law? What will happen with those?
We already are able to cover our kids up to the age of 26. (This not only covers our natural born children, but given the proclivities of Americans, it include foster children, adopted children, and step-children.) We also have better preventive care (routine mammograms for women over 40, colorectal cancer screening for those over 50, immunizations)- all without copayments. Pre-existing conditions and lifetime caps- they no longer exist as of 2014.
We can no longer use our flexible spending accounts to cover non-prescription drugs (except for insulin). But, contrary to what many thought, it can be used to cover the costs of bandages, contact lenses, and blood-sugar test kits.
Small businesses- those that employ 25 folks or less- are entitled to obtain a tax credit. There are 4 million eligible firms- but only about 170,000 have claimed this credit as of last year (the 2010 tax filing). A link to the form, 8941, is found here. The credit changes for CY 2014.
Businesses with more than 250 employees must now list the cost of health coverage on W-2’s. Right now, this is for information only, but there will be “luxury” taxes on some health insurance plans (that provision starts in 2018). And, the penalties could apply to any “large employer” (those who employ 50 full-time employees [or equivalent] or more) who fails to provide adequate health insurance.
There are also some new taxes to cover the costs of this program. The one we all have heard about is the 10% excise tax for tanning salons. But, there is also a 3.8% tax on investment income for high-income tax payers ($ 250K adjusted gross income, after deductions, for joint filers and $ 200K for individuals.) Investment income means interest, dividends, annuities, royalties and rents collected- the latter not applied should the taxpayer qualify as a real estate professional. There also is a surtax on Medicare (0.9%) for wages and self-employment income for the high-income taxpayers (same income limits as listed above in this paragraph).
There are few other changes. Medical expenses listed on Schedule A (Itemized Deductions) are now limited to 10% of adjusted gross income, instead of the 7.5% that obtained previously. Unless, the taxpayer (or spouse) is 65 or older- then the 7.5% still applies until CY 2017.
Our flexible spending accounts have also been limited. That $ 5000 we used to put away is no more. It’s now limited to $ 2500, but it will adjust for inflation each year beginning in 2013.
There’s also an excise tax applied to medical devices. All devices, with the exception of eyeglasses, contact lenses, and hearing aids, are subject to this new tax. It is possible that the Senate will endorse the House’s repeal of this tax, but I wouldn’t bet the farm on that.
I’ve discussed previously the health insurance exchanges. They will be available to individuals and small employers (average wages of $ 50K or less). Either the state will offer the exchange or the Federal Government (Health and Human Services Department) will administer these efforts. There will be three plans- silver, bronze, and gold- and you can expect the prices to be different for these three benefit levels.
That in a nutshell (OK, in 900 words) sums up the provisions of PPACA (Obamacare) for now. If you have questions, feel free to contact us.
Seems like you’ve got everything covered then and everyone will be happy, wealthy and wise.
I can’t help thinking that this reminds me of a scheme I had to start a business that produced nothing at all, but had vending machines at every point, so you could make money by getting your staff to buy things. Never did quite square how to make more money than you’d pay out in wages. Might work if you hired only people who were independently wealthy.
I’m quite sure that the Administration is clever enough to come up with enough good tax and welfare initiatives and then employ enough enforcers to eliminate unemployment completely. Or am I missing something from this side of the Atlantic?
Alan Miles recently posted..14 Ways To Make Friends With An American
Alan, twould that logic ensue from this endeavor. It’s what happens from amalgams- one mixes together various elements, hoping to achieve the best qualities from both. But, if one improperly churns the mix, or fails to pay attention to the proper proportions, we get nothing of the sort.
The fact that no enforcement can be made against penalties means (to me) that many of our younger folks, the ones who don’t think they need insurance because they are young and strong, will still fail to obtain some. And, then wait until they desperately need it. Causing financial harm to the insurance industry, since the penalties will not have been collected to cover their losses. But, 10 years down the pike, when “strapping lad” gets married and has kids and wants insurance, and starts to get tax refunds because of his deductions- they won’t be there, because they will be paying the penalties he failed to cover earlier. And, that’s when he may (or maybe his wife may) have been counting on those refunds for a vacation. (I can also see lawsuits pending against spouses for not disclosing the penalties accrued prior to marriage that now will block the other party- should they file jointly- from obtaining a refund.)
And, no matter how clever one side may be (Administration, insurer, insured, provider), there will always be one entity capable of cutting through the chaff to develop a ravine to amass wealth. Until the landfill arrives to fill that up- and then the next one…
That looks like a pretty good overall summary of what the law was intended to do: My concern is the new things that seem to pop out of the detailed analysis of the 2,600 + pages every week. It’s too bad we couldn’t have kept all the parts of the plan in the same simple structure you have described. And since it wasn’t, I’ll believe it’s really the permanent law of the land when all the legal and political battles have been completed.
There are plenty of places that regulatory systems need to cover. One of the newer ones is the wrinkle (that will not fly, sorry, Cuccinelli) that by not starting up a STATE health insruance exchange, employers are not obligated to meet the law. That’s as likely to be true as his ridiculous exploits against global warming.
Thanks for voicing your concerns, Peggy!
This may be a dumb thing to say, and given that this sort of thing is usually over my wittle head…but Way to get socialized capitalism. 🙂 Don’t get me wrong, I am not opposed to this bill, it’s just that all the ranting and raving I heard about socialized medicine I was expecting it to be a bit different than what we are getting. It is socialized as done by the capitalist. And really not that different in concept to the law that requires us to have insurance on our vehicles.
I am curious as to what is deemed “adequate” insurance. A large(ish) employer in our area supplies security for the Honda plants. The coverage they offer their people is equal to what is considered a supplemental plan, I wonder if that is going to be considered enough.
Great post as always, Roy. Thank you for laying it out like you did, there are still some (read a lot) of blurry points, but as with all new laws there will be that until it gets fully implemented. Shabbat Shalom, Roy, enjoy your evening.
Lisa Brandel recently posted..The Painted Lady by Lisa Brandel
Lisa, I’m trying as hard as I can to educate my clients- and other folks- as to the points of law, points of information, and especially for the smaller companies- the tax credits they can earn to help cover the costs for health insurance. I’m even considering setting up a multi-company employer service to handle payroll and benefits for those with 6 or fewer employees- so that they can get the best prices for all their benefits… not just health care.
Go for it, Roy. I will do my best to spread the word. That would be a valuable company resource.
Lisa Brandel recently posted..The Painted Lady by Lisa Brandel
I know. I just have two client companies to bring to fruition first. (You know… clients first, Lisa.)
This is very interesting (and confusing) but I predict that there will be many changes made in the “ObamaCare” laws over the next few years. I agree that all Americans should have health insurance. It will be interesting to see how the IRS handles all these new laws, provisions, penalties, etc.
I am happy to see that there is a special tax placed on tanning salons. When will people choose good health over vanity?
Janette Fuller recently posted..Book Review: Notes to Aspiring Writers; Your Dream, God’s Plan
It’s not just tanning salons. But, that’s a start…
Thanks for sharing your concerns. You are NOT alone, Janette. That’s part (a large part) of the problem…
Roy
Wow its nice to see that table of content that you share in here Sir Roy, I Think The PPACA is ok now..
Fatima Hipolito recently posted..Laitman
I am so glad that you found this post useful, Fatima! That’s why I write my blog.
Thanks for the visit and comment.
That’s right sir Roy, this page you post in here was really useful, More article to comes in your site..
Fatima Hipolito recently posted..Dr. Laitman
I’m so glad you found this discussion useful. Thanks for the visit and the comment, Fatima.
That’s true sir, this discussion was really useful for me because, I found something really important to know…
Fatima Hipolito recently posted..סכיני ויקטורינוקס
I’m thrilled it was useful for you, Fatima!