Tuesday Tax Time: An Overview of the Health Care Reform Bill

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Well, the bill is here.  Ugh.  Basically, the bill requires most people to buy insurance, and makes new ways available for insurance to be purchased.  Instead of going with a national health care plan, the federal government put the burden on the states to come up with the way to get insurance to Americans.  Milton Friedman, where are you when we need you now?

Let’s see what this means for individuals and small businesses…

State-Based Health Insurance Exchanges

1.  The bill created something called Health Insurance Exchanges where competition is supposed to be created to lower overall health insurance premiums.  These exchanges will be set up by each state, and there is federal funding available to the states to do so.  These exchanges are basically going to be places where you can “shop” for the insurance you need.  And you have to be in one of the following categories to be able to “shop” at the exchange:

-Unemployed

-Retired (but not eligible for Medicare)

-Self-employed

-Small Business (no more than 100 employees)

-Work for a company that does not provide health care

2.  These exchanges have some leniency until the reform really hits in a few years.  That is, the exchanges being run by the states are still going to try to make this profitable before they are restricted from doing so.  For example, the state exchanges have the option to limit (through 2016) the “buyers” to employers with less than 50 employees.

3.  The state exchanges (which could be a non-profit entity formed to manage these exchanges) have to monitor who is offering what on their exchange, but they can not set premiums (yeah, right).  Only the insurance company can set premiums (yeah, right).  But the health care reform bill creates more transparency for insurance companies now.  They have to prove why they raise premiums, how much their insured individuals cost them, etc., or the state exchange can kick them off the list.

4.  If you are in a category mentioned in #1 above, you’ll be able to shop at the exchange starting in 2014.  And if you work for a medium or large company, then you won’t be shopping at the exchange at all.

Federal Subsidies

1.  If you make 100 to 400 percent of the Federal Poverty Level, then you may get subsidies to buy your insurance at the exchange (estimated to be 20 million Americans).

2.  You cannot be eligible for Medicare, Medicaid and cannot be covered by an employer in order to receive subsidies.

3.  The subsidies are calculated on a sliding scale.  That is, the less you make, the less you’ll have to spend on health insurance coverage (i.e. you’ll get more subsidy cash), and the more you make, the more you’ll have to spend on health insurance coverage (i.e. you’ll get less subsidy cash).

4.  And when your income hits 400% of the federal poverty level (about $88k per year for a family of 4), then you aren’t eligible for subsidies anymore.

Is Small Business In Trouble?

1.  If you have fewer than 50 employees, you won’t be penalized by not offering health insurance coverage.  But if one of your employees buys some insurance at the Exchange mentioned above (because you are a tight wad and pay them too little), then you may have to help them by offering vouchers to help them buy at the Exchange.

2.  You could be paying penalties to the government if you don’t offer insurance and have more than 50 employees.  That penalty is $2,000 for every full time employee.  The first 30 employees are exempt from the 50 employee limit on calculating the fine.  Example: You’ve got 51 employees and you DON’T offer health insurance coverage.  You’re in trouble, buddy!  Take 51 minus 30, which equals 21 multiplied by the penalty of $2,000, and your fee to the government for NOT offering health insurance coverage is $42,000!  Whoa.  You would probably do something like fire a few people before paying that penalty, right?  That would get you under the limit of 50 and then you wouldn’t have to pay the fine.

3.  And if you have fewer than 25 employees, and their average wage is less than $40k per year, then you could get tax credits to help pay for the health insurance.  But you’ll only get these tax breaks for two years.

Who is Paying for This?

With a price tag of $940 Billion (with a “b”) in the first 10 years alone, somebody has to pay for this stuff.  And the Congressional Budget Office (CBO) says this bill will even reduce the federal deficit by $143 Billion (another “b”).  Huh?  I doubt that.  You don’t think Obama will find something else to subsidize with that $143 Billion “saved”?

1.  Higher Medicare taxes on rich people’s salary will cover some of the cost.  Singles making $200k per year, and Marrieds making $250k per year are about to pay more tax.  The payroll tax called Medicare is about to go up for you from 1.45% on all wages to 2.35% (an increase of .9%).

2.  And because you are in that bad tax bracket (shame on you), you will also have a new tax levied on you – 3.8% of your interest and dividends will be given to the government to cover subsidies.

3.  These new increase will begin January 1, 2013.

4.  Drug makers and health insurance companies are going to pay through the nose too.  It’s estimated that taxes on these guys will bring in some $63 Billion (another “b”) between 2011 and 2019 to cover the cost of this new bill.

5.  And there is a new 10% tax on indoor tanning salons.  {giggle giggle}  Just go tan outside.

I can’t attest that all of this info is totally accurate, though I tried my best.  The bill is HUGE, and there is so much in it that I’m sure future Tuesday Tax Times will focus on more specific areas of the bill.  Additional parts will become more focused as this stuff is implemented and the uproar from America begins.

I miss slick Willy.

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