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How Does Health Care Reform Impact You?


The recently passed Health Care Reform Act has made waves on Capitol Hill—and spawned a veritable frenzy in the media—but you still may be left scratching your head as to how the changes impact you. Of course, there is no way of telling how the act could impact the economy as a whole (or the political sphere), but there are key points regarding its implementation that individuals and business owners will find relevant—now or in the near future—for their personal bottom lines.

Mandatory health care
The main driver of health care reform was to ensure that every American citizen and legal resident had access to health care coverage. The bill requires this to happen by 2014, though some exceptions will apply, or violators will pay a fine. Uninsured citizens who cannot afford coverage, approximately 32 million of them, will gain coverage through government subsidies and Medicaid. Additionally, Medicare prescription payment limits will increase gradually through 2020.

Changes are not limited to those living in poverty. Business owners will also need to evaluate their existing group plans to meet the provisions of the act, including:
  • Waiting periods to join group health plans cannot exceed 90 days (for employers with more than 50 employees).
  • Employee contributions to the health plan cannot exceed 9.8 percent of individual income (If this amount is exceeded, the employer will be penalized).
  • Employees must be automatically enrolled, unless they opt out, in the employer-sponsored group health (i.e., for employers with more than 200 employees).
  • Group health plans must provide for preventative care without cost-sharing requirements.
  • Insured group health plans will be subject to nondiscrimination rules similar to those in effect for self-funded plans.
  • Lifetime and annual limits on coverage will be prohibited.
There are many more details for the business owner to consider, but this list of changes should illustrate the depth of the act and the impact it may have on businesses of all sizes and their employees.

Additional changes will impact insurance carriers such as:
  • Children covered by insurance cannot be excluded for pre-existing conditions.
  • Adults with pre-existing conditions will be able to buy coverage from temporary high-risk pools until 2014; thereafter, coverage cannot be denied for pre-existing conditions.
  • Insurers cannot cancel or deny coverage if a person is legitimately sick.
  • Insurers will not be able to impose lifetime caps on insurance coverage.
Because they can no longer use pre-existing conditions as part of the equation, insurers will also be limited as to the criteria they can use to dictate individual ratings (for insurability).

Reform does not come free
The insurance industry and employers will face penalties and potential tax changes as a result of the act, but, given that the projected cost is about $940 billion, funding will need to come from other sources as well. These include:
  • In 2013, the Medicare portion of FICA tax will increase by 0.9 percent, to 2.35 percent, for taxpayers with income over $250,000 (jointly) and $200,000 (individually).
  • In 2013, a 3.8-percent surtax will be imposed on net investment income (limits will apply) for tax payers with income over $250,000 (jointly) and $200,000 (individually).
  • In 2011, Medicare Part D subsidies will be reduced for taxpayers with income over $170,000 (jointly) and $85,000 (individually).
  • In 2018, a 40-percent excise tax will be imposed on "Cadillac" health insurance coverage (i.e., a tax on most health plan coverage to the extent the value of the coverage exceeds $10,200 for individual coverage and $27,500 for family coverage).
  • In 2013, the threshold on personal deductions for unreimbursed medical expenses will increase from 7.5 percent, to 10 percent, of adjusted gross income.
  • A 10-percent excise tax will be imposed on indoor tanning services, beginning in July 2010.
Now is the time to find out what the act will mean for you
Although the cost of the act is great, the Congressional Budget Office expects that the final legislation will cut the national deficit. Whether that is true remains to be seen; however, regardless of what the future may hold, now is a good time to consider what these tax and health care coverage changes may mean for you personally—or for your business—and to evaluate strategies to minimize the impact. A financial professional can help you with a financial check-up and put a financial care plan in place for the years to come, regardless of what the legislation may bring.

© 2010 Commonwealth Financial Network