Health Care Reform Changes Taking Effect By January 2011

It has been widely publicized that The Patient Protection and Affordable Care Act of 2010 and the Health Care and Education Reconciliation Act of 2010 were both passed by Congress and signed into law by President Obama in March of this year.  You know that these laws will make major changes in how you receive health care services and how you pay for them, and that they will gradually take effect year by year over the next decade.

Let’s look specifically at the changes that will take effect between now and January 1, 2011 that will impact you directly, and also tell you some useful places to go to get more detail if you would like it.

• Adoptions.  The adoption credit has been increased to a maximum of $13,170, it has been extended through 2011, and most significantly, it has been made refundable.  Even if you don’t owe or pay income tax, you can still get a tax refund for the amount you paid for an adoption.  In the past, this was limited to the amount of tax you paid, with the possibility of getting the rest in a future year.

• Adult Children Under Age 27.  Employer-provided health coverage plans are now required to offer coverage to adult children of employees who have not reached their 27^th birthday, regardless of their marital status or whether they are dependents of their parents for tax purposes.  It is up to each employee to decide whether to accept that offer.  If this situation applies to you, you should have received a letter from your insurance company in the past few weeks notifying you that you can include these children in your insurance coverage if you want to.

• Small Employer Tax Credit.  Small employers with 10 or fewer employees and average annual wages of less than $25,000 are eligible for a tax credit of 35 percent of their contribution towards their employee’s health insurance premiums, through 2013.  Smaller tax credits are also available now for employers with 11-25 employees and for those with average yearly wages of $25,000-$50,000.

• Cafeteria Plans.  There is a new potential exemption from nondiscrimination requirements for cafeteria plans for qualified small employers to encourage more of them to offer tax-free health insurance benefits to employees.

• New Tax On Indoor Tanning Services.   A new 10% tax on indoor tanning services began July 1, 2010.

• Medicines Bought Using A Health Savings Account Must Be Prescribed by a Health Care Professional Beginning January 1.  The whole point of over-the counter medicines is that you don’t have to see a doctor in order to buy and use them.  Beginning January 1, 2011, a prescription from a health care professional will also be required in order to have your health savings account pay for medicines, including the over-the-counter varieties.  I know it seems unusual to be talking about getting a prescription for over-the-counter medicine, but if you want to use your health savings account to buy them that is what you will have to do.  As a side note, this same prescription requirement already became law a few years ago, to claim an itemized deduction on your personal tax return for medicine.

• Increased Tax on Nonqualified Health Savings Account Distributions.  Beginning January 1, this tax increases to 20% for both health savings accounts and Archer medical savings accounts.

This is just a summary of what is happening immediately.  There is much more that is coming, and lots of detail you can read on what is here now.  If you would like more information, there is a website I like that has a timeline that you can easily use to focus on a specific year or a specific type of change, such as affordability/subsidies, employers, financing and taxes, fraud/abuse, insurance, long-term care, Medicaid/CHIP, Medical Malpractice, Medicare, and more.  This website is http://healthreform.kff.org/timeline.aspx.

Business readers should also be aware that when your current health plan comes up for renewal between now and the first several months of 2011, there are likely to be sizeable premium increases.  If you do an Internet search for this, you will find a wide array of amounts and reasons for these coming increases, but no agreement on the subject.  But even U.S. Health & Human Services Secretary Kathleen Sebelius said on September 20, 2010, “I think the rate increases are likely to be somewhat substantial”. My research on what “somewhat substantial” is indicates average 30-40% increases, depending greatly by how many children employees have (remember adult children up to age 26 are likely to be included now), the average employee ages, as well as other factors. 

For example, if a plan currently allows employees to cover one child but not another, expect it to now require all children to be covered.  And instead of one flat premium regardless of the number of children in a family, expect to pay individually for each child. 

As was noted above, small businesses with an employee health plan, may qualify for a tax credit to help pay for these increases.  My purpose in writing about possible premium increases was to let business readers know what may be coming and encourage them to start preparing now before their insurance company gives 30 days notice of large rate increases. 

Get Your Tax or Financial Questions Answered In A Future Blog Post

I choose topics for my blog posts based on the questions I receive most frequently from you.  I appreciate your input!  Feel free to comment here at this blog.

Important Note!   The information in this article is intended to inform you of some of the financial opportunities provided in the tax laws or elsewhere.  These laws are very complex and thus this article is not intended to give you specific advice for your personal situation.  If you need such advice, please contact a qualified professional.

© 2010, Doug Beecher, MBA, CPA, all rights reserved. This article, either as a whole or in part, may not be reproduced or transmitted in any form without the prior written permission of the copyright holder. When such permission is granted, the user must state that the material was used by permission of the copyright holder.