ACA FROM THREE PERSPECTIVES
PROVIDER TAXPAYER TAX PREPARER
HOW WE GOT HERE! • 1935 Social Security • 1942 Price Controls • 1965 Medicare/Retrospective Cost Based Reimbursement – 1967-1983 costs rose from $3 Billion to $37 Billion annually – 2010 costs $560 Billion – Estimated 2022 costs $1 Trillion
• 1983 Medicare/DRG Prospective Payment System • 2005 Medicare part D (Donut Hole) • 2010 Affordable Care Act (ACA)
O B A M A C A R E FA C T S AFFORDABLE CARE ACT (ACA) Signed into law to reform the health care industry by President Obama on March 23, 2010 and upheld by the Supreme Court on June 28, 2012 â€˘ Expands the affordability, quality, and availability of private and public health insurance through consumer protections, regulations, subsidies, taxes, insurance exchanges, and other reforms â€˘ Does not replace private insurance, Medicare or Medicaid
W H AT ’ S N E W W I T H O B A M A C A R E ? TIMELINE OF SORTS 2014
Pre-existing conditions can not be denied.
40% tax would be imposed on insurance companies providing “Cadillac” health plans valued at more than $10,200 for individual and $27,500 for families
“Donut Hole” Medicare RX benefit gap ends. Seniors continue to pay the 25% of drug costs until they reach the threshold for Medicare catastrophic coverage, when their copays drop to 5%
Fines begin if you don’t have coverage. Higher rates allowed on basis of residence, family size & tobacco use Full Time defined as 30 hours per week All group plans must be certified and provide a required minimum benefits Medicaid expanded to cover up to 133% of poverty line ($29,300 for a family of 4)
Current law: Donut Hole is when Medicare stops coverage of drugs after a plan spends $2,830 on RX. It starts to pay again after an individual exceeds $4,550 out of pocket. Gap is $1,720
HIGHLIGHTS OF THE ACA
• • • • •
Expand healthcare coverage to 32 Million uninsured Americans Slow down the rising cost of healthcare Requires Essential Health Benefits in insurance plans Closes the Medicare part D gap (Donut Hole) Expands Medicaid coverage
BASICS OF OBAMACARE 1. 2. 3. 4. 5. 6. 7. 8. 9.
No discrimination based on gender Insurance companies can not take away insurance because people get sick Insurance companies have to justify increases in cost All Americans can purchase or be provided insurance based on their income and employment Americans can not be denied coverage based on pre-existing conditions No co-pays for key medical expenses No annual or lifetime limits Small businesses will receive tax credits for providing insurance Young adults stay on their parents plan until there are 26
1 0 E S S E N T I A L H E A LT H B E N E F I T S
1) 2) 3) 4) 5) 6) 7) 8) 9) 10)
Ambulatory services Emergency services Hospitalization Maternity and newborn care Mental health and substance abuse Prescription drugs Rehab services and devices Laboratory services Preventative and wellness services Pediatric services including oral and vision care
MASSACHUSETTS HEALTH REFORM A CASE TO STUDY
Created in 2006; implemented July 1, 2007 Lowest rate of uninsured in the Country Residents have experienced gains in access to healthcare and preventative services Per capita spending is 15% higher than the national average Highest individual market premiums in the Country Massachusetts must make changes to comply with Obamacare
Subsidy for individuals with income below 300% FPL The supply of primary care physicians is a big issue (Source Kaiser Family Foundation )
ISSUES PROVIDERS WILL FACE
Improving Quality Cost to track quality Follow up with discharged patients Denied charges
Inpatient Value Based Purchasing Program ACA’s main pay for performance quality improvement mechanism
Hospital Re-Admission Reduction Program • Penalizes hospitals with high 30-day re-admission rates • Penalty of Medicare reimbursement • 2013 max. penalty is 1% • 2014 max. penalty is 2% • 2015 max. penalty is 3% •2013 – 2/3 of hospitals were penalized
ISSUES PROVIDERS WILL FACE PHYSICIAN VALUE BASED PAYMENT MODIFIER PROGRAM AKA
Reimbursement Adjustment Based on Quality • Large practices are subject in 2015 • Small practices are subject in 2017
ISSUES PROVIDERS WILL FACE ELECTRONIC HEALTH RECORD
Electronic Health Record (EHR) Meaningful Use We will continue to face issues in meeting stage 1-3 requirements and incurring a large expense to do so.
ISSUES PROVIDERS WILL FACE RISING DEDUCTIBLES Deductibles are rising! This creates more collection efforts, increased staff, less reimbursement and higher bad debt. Patients will begin to ration their own care due to out of pocket costs. Less Reimbursement = Less Everything Where do you cut costs?
FTEs Benefits Raises Other cutsâ€Ś
ISSUES PROVIDERS WILL FACE COOPERATION CRITICAL The focus must be on the patient as a whole rather than an episode of care. How do we do that? Who do we partner with? How much will it cost in the early years? Community Hospitals will begin to eliminate services that become unprofitable example: OB services Hospitals and Physicians must start working together!
I S S U E S P R O V I D E R S W I L L FA C E
• 2% Medicare DRG payment reduction • Sequestration • Medicare disproportionate share cuts • 25% is still paid as it was historically • 75% will fund a pool to be distributed based on Medicare and Medicaid inpatient days • Pool has been reduced $546 million Are we moving toward alternate forms of payment including pay for performance, bundled payments, capitation, or even a single payor system???
O B A M A C A R E M E D I C A I D E X PA N S I O N
• Original law called for expansion in every state – Supreme court ruling allowed states to opt out
• Expanded Medicaid plan would expand coverage to citizens at 138% of FPL • Alabama has opted out • Different studies project different results for Alabama
Q. Medicaid What if you are on Medicaid, in a state that did not expand Medicaid? A. If you are in one of states not expanding Medicaid, you won't have the benefit of the law which expanded coverage of program to everyone under 138% of poverty rate or about $15,800 for an individual. States can still expand in future years. You are not eligible for subsidies in the exchange until your income is at the federal poverty rate of $11,500
OBAMACARE NEW KEY TAXES /BREAKS IN THE AFFORDABLE CARE ACT •
Individual Mandate (new tax) – Every individual must have coverage, get an exemption or pay a per month fee
Employer Mandate (new tax) – In 2015 large employers must insure full time employees or pay a per employee fee
Additional Individual Taxes Advanced Premium Tax Credits – low-to-middle income Americans are eligible for a tax credit which reduce the upfront cost of premiums on health insurance purchased through an exchange
Small Business Tax Credits – Small businesses may be eligible for tax credits of up to 50% of their cost of employee premiums through the Small Business Health Options Program
W H AT I S T H E I N D I V I D U A L M A N D AT E ?
• Requires all citizens and legal residents to have health coverage in 2014 • Health coverage includes: – – – – – – –
Medicare Tricare Veterans Health Program Employer offered health plans Medicaid or the CHIP Grandfathered health plan Bronze level or better purchased on your own
I N D I V I D U A L M A N D AT E MANDATE DOES NOT APPLY TO: • Mandate does not apply to: – – – – – –
Religious objectors Undocumented immigrants Incarcerated American Indians and Alaskan Natives Those with Income below tax filing threshold Lowest cost plan exceeds 9.5% of your income • Income of $20,000 and lowest cost plan after subsidy is more than $1900 per year
H E A LT H I N S U R A N C E P R E M I U M TA X CREDIT • Makes premiums affordable for individuals and families with lower income • Available to individuals and families up to 400% of FPL (federal poverty level) • Insured must apply through an exchange
2013 FEDERAL POVERTY LEVELS FPL
Annual Income – Individual
Annual Income – Family (3)
P R E M I U M TA X C R E D I T S Income Level
Premium as a % of Income
Up to 133% FPL
2% of income
3-4% of income
4-6.3% of income
6.3-8.05% of income
8.05-9.5% of income
9.5% of income
You must go through the marketplace to receive the subsidies.
T H E P E N A LT I E S INDIVIDUAL SHARED RESPONSIBILITY FEE • 2014 the greater of $95 per adult and $47.50 per child ($285 max per family) or 1% of family income • 2015 the greater of $325 per adult and $162.50 per child ($975 max per family) or 2% of family income • 2016 the greater of $695 per adult and $347.50 per child ($2,085 max per family) or 2.5% of family income • 2017 – inflation adjusted
I N D I V I D U A L M A N D AT E F O R TA X P R E PA R E R S 1. 2. 3. 4. 5. 6. 7.
If a taxpayers income situation changes, the premium tax credit may be overstated The penalty is calculated on your MAGI (AGI with certain deductions added back) The penalty is calculated in 1/12 for partial years lacking coverage Anyone with a “gap” in coverage for three months or less is exempt from the tax penalty The penalty is paid on your income tax return at the end of the year Health insurance plans will provide “proof of coverage” Maximum penalty per family is capped at no more than 300% of the minimum penalty
SIGNING UP THROUGH THE MARKETPLACE • • • • •
Alabama does not have a state exchange – chose to use the Federal marketplace Use the website www.healthcare.gov to sign up Open enrollment was from 10/1/2013 – 3/31/14 however extended to 4/15/14 Next enrollment period begins 11/15/14 Special enrollment period for: – – – – – –
Getting married Having or adopting a child Moving to a new area with different health plan options Losing other health coverage Change in income or marital status for premium credit changes Becoming a citizen
OBAMACARE AND SMALL BUSINESS SMALL EMPLOYER HEALTH PREMIUM CREDIT • Three conditions must be met – FTE’s under 25 – Avg. wage per employee under $50K – Employer pays at least 50% of a premium for a QHP for at least one employee
• 2010-2013 – 35% credit, 25% for not-for-profits
• 2014-2015 – 50% credit, 35% for not-for-profits
• 2014, the health insurance must be purchased through the Small Business Health Option Program (SHOP)
Small businesses with more than 100 FTEs and avg. annual wages of more than $250,000 must provide health coverage to full time employees in 2015 Starting in 2016, employers with 50-99 FTEs will have to ensure their fulltime workforce FTE = 30 hours per week Coverage must provide minimum benefits (Bronze level)
THE PENALTIES EMPLOYER SHARED RESPONSIBILITY PAYMENT
• • •
The annual fee is $2K per full time employee if insurance isn’t offered The first 30 full time employees are exempt from the penalty If one full time employee receives the premium tax credit because insurance offered is subpar the employer must pay the lessor of $3K for each employee receiving the credit or $750 for each of their full time employees The fee is calculated per month and due annually The fee is NOT tax deductible
NEW REQUIREMENTS FOR REPORTING Beginning 2015: 1. you must file an annual return reporting whether and what health insurance you offered your employees 2. if you provide self-insured health coverage, you must file an annual plan reporting certain information for each employee you cover 3. You are required to report the value of health insurance coverage you provided to each employee on his/her W-2 (box 12 code DD) 4. You must complete a form 1099 for all vendors. REPEALED â€˘
Vendors who receive $600 or more in payments
THE TAXPAYER PERSPECTIVE TAXES THAT WILL NOT AFFECT THE AVERAGE INDIVIDUAL
2.3% TAX ON MEDICAL DEVICE MANUFACTUERS 10% TAX ON INDOOR TANNING SERVICES BC/BS TAX HIKE TAX ON BRAND NAMED DRUGS
NEW TAXES ON INDIVIDUALS
MEDICARE TAX ON INVESTMENT INCOME 3.8% MEDICARE PART A TAX INCREASE OF .9% 40% EXCISE TAX ON HIGH END PREMIUM HEALTH INSURANCE PLANS (BEGINS 2018) ANNUAL $63 FEE LEVIED BY ACA ON ALL PLANS MEDICINE CABINET TAX ADDITIONAL TAX ON HSA/MSA DISTRIBUTIONS FOR NON QUALIFIED MEDICAL EXPENSES FSA SPENDING ACCOUNT CAP
A D D I T I O N A L M E D I C A R E TA X
Applies to wages and self-employment income – – – – – –
NOT used for Medicare Tax is 0.9% Married, filing jointly $250,000 Single, HOH, qualifying widow(er) $200,000 Employer is required to withhold for wages over $200,000 For higher earning MFJ, an adjustment to withholding or estimated taxes may be necessary
FLEXIBLE SPENDING ACCOUNT CAP
Formally, Pre-tax funds used for medical expenses – Includes contact lenses, children’s braces, OTC drugs – Special needs children tuition was eligible – Unlimited cap
New, Pre-Tax funds used for medical expenses – Can not be used for OTC drugs – New Cap = $2500
M E D I C A L L O S S R AT I O (M L R ) WILL THEY GIVE IT BACK? • ACA REQUIRES 80-85% OF PREMIUMS BE SPENT ON HEALTHCARE SERVICES AND HEALTHCARE QUALITY IMPROVEMENTS • REFUNDED PREMIUMS MAY BE TAXABLE – Refunded premiums reduce the insurance companies’ taxable income – The reduction year and/or an estimated reserve have yet to be addressed – If the taxpayer did not claim a health insurance deduction on their 1040, it is not taxable – If the taxpayer deducted health insurance on their schedule A or as a SEHI, then they must claim the refund as income – It’s unlikely the taxpayer will receive a form 1099-MISC – As a tax preparer, we should ask and report!
DEFINING THE NIIT NET INVESTMENT INCOME TAX
A 3.8% net investment income tax went into effect starting in 2013 for individuals, estates, and trusts that have investment income above certain threshold amounts.
NET INVESTMENT INCOME TAX TAXPAYERS THAT MAKE MORE THAN $200,000-$250.000 MAGI Thresholds for the NIIT Filing Status
Married, filing jointly
Married, filing separately
Head of Household
NIIT WHAT IS INCLUDED IN THE NIIT?
A. B. C. D. E. F. G. H. I. J. K. L.
Interest Dividends Capital Gains Rental Income Royalty Income Non Qualified Annuities Income from businesses involved in trading securities Income from a passive business Gains from the sale of stocks, bonds, and mutual funds Capital Gain distributions from mutual funds Gains from the sale of investment real estate Gains from the sale of interests in partnerships and S Corps
NIIT WHAT IS NOT INCLUDED IN THE NIIT?
A. B. C. D. E. F. G.
Wages Unemployment compensation Operating income from a non-passive business Social Security benefits Alimony Tax exempt interest Distributions from certain qualified plans (401A; 403B; 457B; traditional IRA)
HOW DOES THE 3.8% SURTAX WORK? MARRIED COUPLE WITH INCOME OVER $250K
E S T I M AT E D I N C O M E F R O M N E W TA X E S OVER NEXT 10 YEARS Tax
Estimated Income (Billions)
Medicare Payroll Tax
Individual Employer Mandate
Tax of Health Insurers
Excise Tax on Cadillac Plans
Medical Device Manufacturing
Schedule A Medical Deduction
Richard Byerly, CPA Byerly & Associates 120 S Ross St Auburn, AL 36830 334-740-7037 email@example.com www.byerlycpa.com www.churchtaxcredit.com