One of the most overlooked facts concerning the Patient Protection and Affordable Care Act (PPACA) also known, as ObamaCare is that it contains many new provisions that impact the pocketbooks of all of us. The new tax related provisions include tax increases, limits to deductions, tax credits, tax breaks, and other changes. A few of the changes will directly affect the average American; however, the tax increases will primarily affect high-income earners; i.e., those earning over $200,000 as an individual or $250,000 as a married couple, and the health care industry. In general, physicians are considered high-income earners. Tax credits will apply mostly to low-to-middle income Americans and small businesses. In summary; however, ObamaCare imposes one of the largest tax increases, if not the largest, in American history.
Provided below is a synopsis of the new fees, taxes, income deduction limits, and some other changes contained within ObamaCare:
Provisions that Will Mainly Affect High Income Earner Americans
§ Medical Device Manufacturers Tax– Beginning this year, 2014, a 2.3% sales surtax will be added to the cost of all medical devices costing more than $100.
§ Brand Name Drugs Tax– Starting in 2011, a tax assessment is extracted from the sale of prescriptive drugs. Specifically, the tax is based upon the aggregate revenue from brand name drugs. The amount of the tax gradually rises each year until 2018.
§ Health Insurers Tax – This tax is similar to the one on prescriptive drugs but higher. It gradually rises beginning this year until 2018. The tax is relative to the amount of health insurance premiums collected annually and is fully imposed on firms with $50 million in profits.
§ Medicare Part A Tax Increase - In January 2013, individuals with adjusted gross incomes (AGI) of greater than $200,000 and married couples with more than $250,000 will experience an increase of .9% in their Medicare Part A payroll tax taking it from 1.45% to 2.35%.
§ Employer Reporting of Health Insurance on W-2 - Employers that issued 250 or more W-2 forms in 2012 must now report the cost of their employer-sponsored health coverage for 2013 on their W-2 forms. This is not a tax but rather a preamble to taxing health benefits on individual tax returns.
§ Medicare Investment Income Tax – Effective in 2013, a 3.8% (capital gains) surtax is levied on individual income tax filers with AGIs of greater than $200,000 and joint filers with more than $250,000 on interest, dividends, annuities, royalties, rents, and gains on the sale of investments.
§ Medicare Payroll Tax – Again, effective in 2013, high income earners; i.e., individuals earning more than $200,000 will have their Medicare payroll tax deduction increased from 2.9% to 3.8%
§ Employer Mandate - Beginning in 2015, employers with over 50 full-time equivalent employees must either insure their full-time employees or pay a penalty. The penalty is $2,000 per employee. If at least one full-time employee receives a premium tax credit because health insurance coverage is either unaffordable or does not cover 60 percent of total costs, the employer must than pay the lesser of $3,000 for each of those employees receiving a credit or $750 for each of their full-time employees total.
§ Excise Tax on Charitable Hospitals –this tax took effect in 2010 and imposes a $50,000 fee per hospital if they fail to meet new “community health assessment needs,” “financial assistance,” and “billing and collection’” rules set by the Department of Health and Human Services.
§ Blue Cross/Blue Shield Tax Increase – This provision took effect in 2010 and does away with the special tax deduction, in current law, for Blue Cross/Blue Shield companies if they do not spend 85% or more of health insurance premium revenues on clinical services.
§ $500,000 Annual Executive Compensation Limit for Health Insurance Executives – Specifically, this provision restricts the annual compensation for health insurance executives to $500,000 and began on January 1, 2013. If the limit is exceeded a fine is imposed.
§ Removal of tax deduction for employer-provided retirement Rx drug coverage in coordination with Medicare Part D - The tax deduction for employer-provided retirement Rx drug coverage in coordination with Medicare Part D was eliminated on January 1, 2013.
§ Codification of the “economic substance doctrine” – Although this is not a tax, it permits the Internal revenue service (IRS) to disallow completely legal tax deductions and other tax-minimizing plans just because the IRS deemed that action lacked “substance” and were merely intended to reduce taxes owed. The provision went into effect in 2010.
Provisions that May Directly Affect the Average American
§ Flexible Spending Account (FSA) Limit – In 2013, contributions to FSAs, which allowed persons to set aside pre-tax dollars for paying medical expenses, were limited to $2,500 annually. Previously, there was no limit.
§ Excise Tax “Cadillac” on high-end Premium Health Insurance Plans – Effective in 2018, a 40% tax will be placed on the dollar amount of healthcare plans that exceed set limits ($10,000 single/$27,500 family), higher thresholds will be used for early retirees and high-risk professions ($11,500 single/$29,500 family). The limits are indexed to inflation (Consumer Price Index [CPI] + 1 percent).
§ Medical Deduction Limit – Started in 2013, the itemized medical deduction limit rose from 7.5% to 10% of AGI. Individuals and their spouses are exempted from this limit until 2016.
§ Medicine Cabinet Tax – Beginning in 2011, over-the-counter medicines no longer qualified as medical expenses for FSAs, health reimbursement arrangements (HRAs), health savings accounts (HSAs), and other Archer Medical Savings Accounts (MSAs)
§ Indoor Tanning Services Tax – Beginning this year; a 10% excise tax is levied on Americans using tanning bed services.
§ Annual Healthcare Plan Fee – A $63 fee per person is levied on all healthcare plans beginning this year and will decrease each year until 2017 when pre-existing conditions are eliminated. This fee is to assist insurance companies in covering the costs of high-risk pools.
§ Additional Tax on HSA/MSA Distributions –Effective in 2011, the penalty for using HSA or Archer MSA money on non-qualified medical expenses increases from 10% to 20% for HSAs and from 15% to 20% for MSAs.
§ Individual Mandate – This is the tax for not buying health insurance if you can afford it. Starting in January 2014 individuals not purchasing “qualifying” health insurance must pay penalty of $95 or up to 1% of their income, whichever is greater. The penalty rises to $695 or 2.5% of income by 2016. For families the tax will be $2,085 or 2.5% of household income. The total penalty amount cannot exceed the national average of the annual premiums of a “bronze level” ObamaCare health insurance plan on the exchanges. After 2016, the penalties are indexed to inflation.
The following link provides a full listing of ObamaCare Taxes by the IRS http://www.irs.gov/uac/Affordable-Care-Act-Tax-Provisions
Although some of these taxes are to be paid directly by health insurers, drug companies, and medical device manufacturers, consumers are likely to see these costs passed onto them via higher insurance premium, prescriptive drug, and medical device prices.