Patient Protection & Affordable Care Act - Part IV

October 11, 2010, 11:06 AM

This post is a continuation of the last post describing the funding mechanisms for the PPACA.

Employer Requirements. Effective January 1, 2014, large employers who fail to offer their full-time employees the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan for any month and have at least one full-time employee for that month in a qualified health plan for which a premium tax credit or cost-sharing reduction is allowed or paid for the employee is subject to a penalty of $2,000 per year per full-time employee.

Large employers who offer coverage but have one or more full-time employees enrolled in a qualified health plan for which a premium tax credit or cost-sharing reduction is allowed or paid for these employees will pay a penalty of $3,000 per year per full-time employees receiving a premium tax credit or cost-sharing subsidy.

However, the first 30 full-time employees are not counted in computing the penalties. These penalties do not apply to employers with 50 or less employees.

By way of example, In 2014, Omega Corp. offers health coverage and has 100 full-time employees, 10 of whom receive a tax credit for the year for enrolling in a state exchange offered plan. For each employee receiving a tax credit, Omega owes $3,000, for a total assessable payment of $30,000 ($3,000 x 10 employees). The maximum amount of the assessable payment for Omega is capped at the amount of the assessable payment that it would have been assessed for a failure to provide coverage, or $140,000 ($2,000 x 70 full-time employees (100 full-time employees, less 30)). Since the calculated assessable payment ($30,000) is less than the overall limitation ($140,000), Omega owes the $30,000 assessable payment, which is assessed on a monthly basis.

Note: Employers providing free choice vouchers will not be subject to the penalties for employees who receive premium credits or cost-sharing reductions in the Exchange.

Health Insurance Provider Industry User Fees. Effective 2014, the PPACA imposes an annual fee on the health insurance provider industry. The annual fees are as follows:

  • $8 billion in 2014,
  • $11.3 billion in 2015-2016,
  • $13.9 billion in 2017,
  • $14.3 billion in 2018, and
  • $14.3 billion + rate of premium growth in 2019 and beyond.
These annual fees are allocated across the industry sector according to each health insurer's market share.

Prescription Drug Industry User Fees. Effective 2011, the PPACA imposes an annual fee on brand name prescription drug manufacturers. These annual fees are as follows:

  • $2.5 billion in 2011,
  • $2.8 billion in 2012-2013,
  • $3.0 billion in 2014-2016,
  • $4.0 billion in 2017,
  • $4.1 billion in 2018, and
  • $2.8 billion in 2019 and beyond.
These annual fees are allocated across the industry sector according to market share.

Medical Device Industry Excise Tax. Effective 2013, a 2.3% excise tax will be assessed on medical devices sold in the U.S.

Health Savings Accounts ("HSAs"). Starting in 2011, individuals who have Health Savings Accounts ("HSAs") or Archer Medical Savings Accounts ("MSAs") will no longer be permitted to take distributions in order to pay for over-the-counter medications (there is a special exception for insulin) with pre-tax dollars. Individuals who have HSAs or MSAs and take distributions that are not used for qualified medical expenses will, effective 2011, instead of paying the current 10% and 15% additional tax, respectively, pay a 20% additional tax on such distributions.

Flexible Spending Accounts ("FSAs"). Effective for tax years beginning after December 31, 2012, a FSA will not be a qualified benefit under a cafeteria plan unless the plan provides for a $2,500 maximum salary reduction contribution to the FSA.

Individual Income Taxes. Effective 2013, a hospital insurance (Medicare Part A) payroll tax will be increased by 0.9% (from 1.45% to 2.35%) on individuals earning over $200,000 and joint filers earning over $250,000, (income amount not indexed to inflation).

Effective 2013, an annual "unearned income Medicare Contributions Tax" in the amount of 3.8% will be assessed on individuals earning over $200,000 (or joint filers earning over $250,000) in an amount equal to the lesser of:

  • net investment income from interest, dividends, annuities, royalties, rents and certain other income and gains not generated in the ordinary course of an active trade or business, or which is generated in a trade or business of trading financial instruments or commodities, or
  • modified adjusted gross income (which includes, for this purpose, foreign earned income net of certain expenses) in excess of $200,000 ($250,000 for joint filers and surviving spouses, $125,000 in the case of married taxpayers filing separately).
By way of example, if a couple's total income is $300,000 ($50,000 above the threshold), and they had $40,000 in investment income, the 3.8% tax would apply to the $40,000. If their investment income was $60,000, however, they would only pay the tax on $50,000, which represents the amount in excess of the applicable threshold.

Unreimbursed Medical Expenses. Effective January 1, 2013, the threshold for the itemized deduction for unreimbursed medical expenses will increase from 7.5% of adjusted gross income to 10% of adjusted gross income for regular tax purposes. The increase will be waived for individuals age 65 and older for tax years 2013 through 2016.

Indoor Tanning Services. Effective July 1, 2010, a 10% tax will be imposed on the amount paid for indoor tanning services.

The above encompasses all of the current funding mechanisms for the PPACA. Query: Will these costs be passed on to the consumers? I think you know the answer to that question.--T. Braxton McKee