What happens in the wake of the Supreme Court’s decision?
The mandate stands. By a 5-4 vote, the Supreme Court has upheld the core of the 2010 Affordable Care Act. The law’s most controversial provision will stand – the mandate requiring every American citizen to buy individual health insurance coverage.1
The court made a key distinction, interpreting that mandate not as a directive but as a tax. “The federal government does not have the power to order people to buy health insurance," Chief Justice John G. Roberts, Jr. wrote in the majority opinion. "The federal government does have the power to impose a tax on those without health insurance."1
The ruling carries profound implications for individuals, businesses and households.
Every American has to have health insurance by 2014 or pay a tax. If you are already insured, this isn’t a dilemma – but if you are self-employed or work at a company with fewer than 50 employees that doesn’t provide health insurance coverage, securing health coverage will be your individual responsibility.2
If you fail to buy health insurance in 2014, you will pay a penalty - $95 or 1% of your income, whichever is higher. In 2015, the penalty rises to $325 or 2% of your income.2
Larger companies must comply or face fines. Any business with more than 50 full-time employees must provide health insurance coverage to its workforce in 2014. If a business fails to do this, it will be fined if just one of its employees buys insurance on a state exchange (see below) or goes to the federal government for a health care tax credit.2
The fines will start at $40,000 and jump $2,000 for each additional worker older than 50 – and if the plan doesn’t cover 60% or more of health care expenses and cost an employee no more than 9.5% of his or her family’s salary, the per-employee penalty rises to $3,000.2
Federal government statistics indicate that only about 200,000 of the nation’s 6 million small businesses will face this obligation. Health care rebates (from insurance companies that spent too much on administrative overhead) and health care tax credits (which averaged $2,700 per business in 2011) may help.2
Business owners who pay for employee health coverage could see a reduction in premiums – theoretically, at least.
A “Cadillac tax” is coming. In 2018, insurers of employer-sponsored plans (or firms that self-insure their own plans) are looking at an excise tax if plan costs exceed $10,200 for individual coverage and $27,500 for family coverage. These limits are higher for plans covering employees in high-risk occupations and retirees. The idea is to encourage these businesses to select less expensive plans, with the byproduct possibly being higher taxable wages for workers (and added revenue for the federal government). Mercer polled businesses with more than 500 employees in 2011 and found that about 60% felt they would face this new tax.4
The Medicare surtax is on the horizon. In 2013, individuals earning more than $200,000 a year and married couples earning more than $250,000 a year are facing a new 3.8% surtax on at least a percentage of their capital gains and dividends as well as 0.9% more tax on their earned incomes above those dollar levels.4
The threshold for medical deductions is poised to rise. This year, you can deduct medical expenses when they surpass 7.5% of your adjusted gross income. In 2013, the threshold will be 10% - but this increase will be waived for Americans 65 and older during tax years 2013-2016.4
The new FSA and HSA rules stand. Next year, employees may contribute no more than $2,500 to a Flexible Spending Account. The 2011 provision levying a 20% penalty for the misuse of funds from a Heath Spending Account will remain in place.4
Insurance exchanges are set to appear in 2014. Individuals, solopreneurs and businesses can start shopping for cheaper coverage via their state’s exchanges. (A dozen states are already at work creating them.) Individuals can qualify for tax credits if their annual individual income ranges between 100%-400% of the poverty line (in 2012, the ceiling would be $44,680). Via these exchanges, families with annual household incomes up to nearly $90,000 will be able to buy insurance at prices subsidized according to income level. Firms with up to 100 workers may turn to Small Business Health Options Programs.2,3
Citations.
1 – www.latimes.com/news/politics/la-pn-justice-roberts-leads-supreme-court-support-of-healthcare-law-20120628,0,3606595.story [6/28/12]
2 – money.cnn.com/2012/06/28/smallbusiness/supreme-court-health-reform/index.htm [6/28/12]
3 - www.cnbc.com/id/47996639 [6/28/12]
4 - money.cnn.com/2012/06/28/pf/taxes/health_reform_new_taxes/index.htm [6/28/12]
Sincerely,
William T. Morrissey and Tammy Prouty
Sound Financial Planning Inc.
wtmorrissey@soundfinancialplanning.net
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