Health Care Reform Bill

Individual Insurance Mandates included in Health Care Reform

The Patient Protection Act, as amended by the House Reconciliation Act, requires most individuals not otherwise eligible for Medicaid or Medicare or other government-sponsored coverage to maintain minimum essential coverage beginning after 2013. Individuals who fail to maintain minimum essential coverage would be liable for a penalty. The Patient Protection Act uses a formula to calculate the penalty taking into account the taxpayer’s household income and a flat dollar amount. The Patient Protection Act, as amended by the House Reconciliation Act, imposes a nondeductible flat dollar-amount penalty of $95 per person without minimum essential coverage in 2014. The nondeductible penalty rises to $325 per person without minimum essential coverage in 2015, then to $695 per person without minimum essential coverage in 2016 and is indexed for inflation thereafter.

NOTE: For individuals under the age of 18, the applicable flat dollar penalty would be one-half of the above amounts.

NOTE: The flat dollar penalty on any taxpayer for any tax year with respect to all individuals for whom the taxpayer is liable (generally family members) cannot exceed an amount equal to 300 percent of the applicable dollar amount for the year.

Additionally, amendments made by the House Reconciliation Act raise the percentage of income that is the alternative to the flat dollar annual penalty from 0.5 percent to 1.0 percent in 2014, 1.0 to 2.0 percent in 2015, and 2.0 to 2.5 percent for 2016 and subsequent years.

Year	Penalty	Percent of Income*
2014	$95	1%
2015	$325	2%
2016	$695**	2.5%
* In lieu of the flat penalty if greater
** Indexed for inflation thereafter

Here is an example: Anita is a 36-year old single woman and does not have minimum essential coverage in 2016 and she is not exempt from having minimum essential coverage. Anita would therefore be liable for a penalty the greater of:

$695, or
2.5 percent of her modified adjusted gross income. (If MAGI were $60,000, that 2.5% would equal $1,500, for example)

Small Business Provisions of the Health Care Reform Act

The Patient Protection Act, as amended by the House Reconciliation Act, provides a temporary sliding-scale small employer tax credit to help offset the cost of employer-provided coverage. Generally, a small employer is one with no more than 25 employees and average annual wages of less than $50,000.

In 2010 through 2013, eligible employers may qualify for a tax credit for up to 35 percent of their contribution toward the employee's health insurance premium. In 2014 and beyond, eligible employers who purchase coverage through a state exchange may qualify for a credit for two years of up to 50 percent of their contribution. Qualifed tax-exempt employers would be eligible for a reduced credit. Salary reduction contributions are not counted.

Personal Provisions of the Health Care Reform Act

Limits Flexible Spending Arrangements (FSAs) to $2,500

An FSA is one of a number of tax-advantaged financial accounts that can be set up through a cafeteria plan of an employer. An FSA allows an employee to set aside a portion of his or her earnings to pay for qualified expenses as established in the cafeteria plan, most commonly for medical expenses but often for dependent care or other expenses. Under current law, there is no limit on the amount of contributions to an FSA. Under the new law, however, allowable contributions to health FSAs will capped at $2,500 per year, effective for tax years beginning after Dec. 31, 2012. The dollar amount will be indexed for inflation after 2013.

Floor on medical expenses deduction raised from 7.5% of adjusted gross income (AGI) to 10%.

Under current law, taxpayers can take an itemized deduction for unreimbursed medical expenses for regular income tax purposes only to the extent that those expenses exceed 7.5% of the taxpayer's AGI. The new law raises the floor beneath itemized medical expense deductions from 7.5% of AGI to 10%, effective for tax years beginning after Dec. 31, 2012. The AGI floor for individuals age 65 and older (and their spouses) will remain unchanged at 7.5% through 2016.

Styling of the Bills - The Patient Protection and Affordable Care Act of 2010 and H.R. 4872, the Health Care and Education Tax Credits Reconciliation Act of 2010 (the House Reconciliation Act).

(The House Reconciliation Act served as a “sidecar” bill, that allowed amendments to the Patient Protection Act to be passed by the Senate with only 51 votes using the budget reconciliation rules)