After about one year of debating health care reform, Congress has passed and the President has signed into law the Health Care Act of 2010. Its impact will be far-reaching as it requires most U.S. citizens to purchase health insurance if they are not already covered by Medicare or Medicaid. States will be required to setup exchanges to assist small businesses in helping their employees find health insurance coverage. If an individual does not obtain health insurance coverage, he or she could be subject to a penalty.
The provisions in the legislation go into effect at various points in time. Some start in 2010 while others don’t kick in until 2014 or later. For example, the requirement to obtain health insurance coverage generally does not apply until after January 1, 2014. One of the benefits extended to low and middle income individuals and families is a refundable tax credit that will assist in the purchase of health insurance coverage. This is called the premium assistance credit. It also goes into effect after January 1, 2014. It will be available to individuals and families with incomes up to 400% of the federal poverty level and who can’t get coverage otherwise.
Many qualifying small businesses will benefit from a new tax credit for employers that provide health insurance coverage to their employees and pay for at least 50% of the premium costs. The credit equals up to 35% of the employers cost to provide coverage. This provision goes into effect January 1, 2010. The credit increases up to 50% of the employers cost after January 1, 2014. The credit applies to businesses that have less than 25 full-time employees and whose full-time employees average less than $50,000 per year. It’s worth noting that the credit is pro rated starting at 10 full-time employees and is phased out at 25 employees. Likewise, average annual wages start to phase out at $25,000 per year and the credit is completely phased out at $50,000 per year. So to obtain the full credit, you would need to have 10 or less full-time employees and their average annual wages would have to be less than $25,000 per year. Furthermore, the amount of the credit reduces the deduction for the health insurance premiums paid by the employer and the credit is not available for the costs of covering the small business owners or their family members.
Families with adult children under the age of 27 are going to receive relief from the health care bill. Tax-free reimbursements from employer medical reimbursements plans are now allowed to children under the age of 27. Before this change was enacted, only dependent children qualified for tax-free reimbursements. This change went into effect on March 30, 2010. This change also benefits self-employed individuals. In the past, they have been allowed to deduct premium costs for themselves, their spouse and their dependent children “above-the-line” or before AGI is calculated. Under the new law, they can include premiums paid for non-dependent children under the age of 27 as an “above-the-line” deduction.
This article discusses some of the changes to the health care system and some of the benefits in the legislation. Next time, we will look at some of the revenue-generating tax increases that will help pay for the changes to our health care system. Stay tuned.