Avoiding the FUD: Removing Fear, Uncertainty
and Disinformation from Health-Care Reform
Where is business in its second year after passage of the federal health-care reform law? The most common health-care question we hear at our firm is: "Will the courts strike down the health-care reform law?"
Opponents of the Patient Protection and Affordable Care Act have legally challenged it, arguing primarily that the individual mandate is unconstitutional. Rulings from different federal court circuits exist on both sides of the issue. Thus, the U.S. Supreme Court will ultimately decide. For now, the law remains the law and businesses must comply. The magnitude of it, though, compounds the likelihood of implementation errors. So, what should you know?
To recap: The law requires each state to establish a state exchange provides for a health-insurance exchange established by the federal government by 2014. It also provides subsidies through income-tax credits of insurance premiums purchased through state exchanges for individuals with incomes of up to 400 percent of the poverty line. Whether the federal government can effectively impose a federal-exchange system on the states has recently come into question, due to the omission of any mention in the law of individuals who enroll in a federal exchange (as opposed to a state exchange) as being eligible for the income-tax credit.
Kansas was the recipient of federal funding to create a model state exchange, but, as has occurred in some other states, Gov. Sam Brownback has made the decision to return the money amidst concerns that the exchanges will be too tightly controlled by the Department of Health and Human Services under restrictive rules. Sandy Praeger, the Kansas Insurance Commissioner, has nevertheless promised to continue the effort to create a state exchange without federal funding. Meanwhile, Missouri’s efforts to create a state exchange have been stalled by the General Assembly until next year.
The difficulty businesses will have in compliance is not rooted solely in the costs of covering employees or penalties for lacking that coverage. For many, the operational costs built into the law to finance the reforms are concerns, as well. The rules requiring employers to disclose on a W-2 the value of health insurance benefits provided to employees have been delayed twice by the IRS and are now applicable for the 2012 tax year. Additionally, there is an exemption; if the employer was required to file fewer than 250 W-2s for the preceding calendar year, no disclosure is necessary.
Up to six years of tax credits were offered beginning in 2010 to qualified small businesses to subsidize the cost of employee insurance premiums. To receive the full 50 percent premium subsidy, the small business must have an average payroll of less than $25,000 per full-time employee, excluding the owner and family members, and fewer than 11 employees. The subsidy is gradually reduced as the business adds employees or if the average payroll is over $25,000 and less than $50,000. This credit applies to for-profit and non-profit employers and is 35 percent (25 percent for non-profit employers) of the qualifying health insurance costs in 2010 through 2013. For any two consecutive years beginning in 2014, it is 50 percent of an eligible for-profit employer’s qualifying expenses and 35 percent for non-profit employers.
Beginning in 2014, employers with at least 50 full time employees, who do not offer health insurance to their full-time employees, will owe a $2,000 per employee tax penalty, excluding the first 30 full time employees from the calculation of the penalty.
Beginning Jan. 1, 2013, self-employment income and wages of single individuals in excess of $200,000 annually will be subject to an additional tax of 0.9 percent. An additional tax of 3.8 percent will be added on the lesser of net investment income or the amount by which a single person’s adjusted gross income exceeds $200,000. The threshold for both taxes is $250,000 for a married couple filing jointly or $125,000 for a married person filing separately.
Delivering quality health care to every American without wasting resources is the intended goal of the reforms. It’s too early to tell what the long-term impact of the new law will be, but earlier this month, the Census Bureau confirmed that the problem of the uninsured is still with us. The share of Americans without health insurance coverage rose from 16.1 percent to 16.3 percent, or 49.9 million people, due mostly to continued losses of employer-provided health insurance in a weak economy.
Whether ACA remains in effect, is amended or is replaced, businesses will continue to feel the impact of the costs of providing health-care services to the uninsured.
Andrew Ramirez is chairman of the health-care business division for Lathrop & Gage in Overland Park, Kan.
P | 913.451.5113
E | ARamirez@LathropGage.com
Return to Ingram's September 2011