How the New Health Insurance Laws Will Affect You Now

President Obama has signed into law the Patient Protection and Affordable Care Act of 2010 along with the Health Care and Education Tax Credits Reconciliation Act of 2010. These two new laws will dramatically change health insurance in the United States.
Together, the new legislation includes more than 2,000 pages and many provisions. The most prominent features of the new laws may be the requirement for individuals to purchase health insurance and federal subsidies to help some people with low or moderate income pay for the required coverage. Those provisions won’t be effective until 2014, however.
Provisions of the new legislation that are effective immediately or later this year generally place restrictions on health insurers. Insurance companies

• won’t be able to limit lifetime payouts to specific policyholders.

• must comply with annual payout limits, which will be described by federal regulations.

• won’t be allowed to drop policyholders; however, they will be able to cease coverage for individuals who commit fraud or intentional misrepresentation.

• must cover preventive services such as checkups without copays, coinsurance, or deductibles. can’t exclude children from coverage because of pre-existing medical conditions.

• must allow children to remain on their parents’ policies until they reach age 26.

Additionally, two programs will be established in 2010 and remain in effect through 2013. One of these programs enables adults with pre-existing medical conditions to obtain health insurance in a high risk pool. The other will assist companies in maintaining health coverage for former employees between ages 55 and 65, until they qualify for Medicare.

Also, the federal government will pay a $250 rebate in 2010 to Medicare beneficiaries who reach the so-called “donut hole” for the year. Many Medicare enrollees buy a Part D plan to provide coverage for prescription drugs. After they spend $2,830 for prescription drugs under the plan (in 2010), these seniors must pay full price until they reach $4,550 in outlays and insurance coverage resumes. This coverage gap is the donut hole. Other provisions in the new legislation will completely close the donut hole by 2020.

New tax credit
One provision effective for 2010 is a tax credit for small companies that provide health insurance to employees.

Which companies qualify? To get the full tax credit, a company must have 10 or fewer employees and the average annual wage must be less than $25,000. Partial credits are available to companies with as many as 25 employees and average wages up to $50,000.

What are the credits worth?  The maximum credit is 35% of premiums paid. The calculation is far from simple, though. Only nonelective employer contributions count as premiums paid. That is, contributions made to a salary reduction arrangement under a cafeteria plan don’t count.

The nonelective contributions must then be compared to the average health insurance premium for the small group market in the company’s state. The smaller number will be used as the base for determining the tax credit.

Example: ABC Corp. has 8 full time employees and a total payroll of $190,000 per year (an average of $23,750 per employee per year). The company pays $20,000 a year for employee health insurance, a number that is smaller than the state average for small groups. Therefore, the company qualifies for a tax credit of $7,000 in 2010, 35% of $20,000.

In calculating the tax credit, premiums paid to cover some employees don’t count. This group includes seasonal workers, selfemployed individuals, shareholders who own 2% or more of an S corporation, and owners of 5% or more of a small business. Premiums paid to cover this group’s dependents or other household members won’t count either. Our office can help you determine whether your business qualifies for this tax credit and make the required calculation.

As previously mentioned, these tax credits will be offered from 2010 through 2013. Starting in 2014, a new program will take effect, offering tax credits of up to 50% of premiums paid.
Next month’s CPA Client Bulletin will include detailed coverage of the key elements of the new legislation that will take effect in future years.

Did You Know ?
In households where one person receives Social Security benefits, the average monthly payment is $1,152. When a retired worker and a spouse age 62 or older receive benefits, the average monthly payment is $1,892. The largest monthly check in 2010 is $3,119, payable to high income workers who wait until age 70 to collect benefits.

Source: Social Security Administration