affordable care act details

Important Notice

This report is intended to serve as a basis for further discussion with your other professional advisors.Although great effort has been taken to provide accurate numbers and explanations, the information inthis report should not be relied upon for preparing tax returns or making investment decisions.

Assumed rates of return are not in any way to be taken as guaranteed projections of actual returns fromany recommended investment opportunity. The actual application of some of these concepts may be thepractice of law and is the proper responsibility of your attorney.

Pathway Financial DesignPathway Financial Design

Presented by Joel Broersma, CFP, EAPresented by Joel Broersma, CFP, EAOctober 8, 2013October 8, 2013 of 16Page 1 of 16

Disclosure Notice

The information that follows is intended to serve as a basis for further discussion with your financial, legal,tax and/or accounting advisors. It is not a substitute for competent advice from these advisors. The actualapplication of some of these concepts may be the practice of law and is the proper responsibility of yourattorney. The application of other concepts may require the guidance of a tax or accounting advisor. Thecompany or companies listed below are not authorized to practice law or to provide legal, tax, oraccounting advice.

Although great effort has been taken to provide accurate data and explanations, and while the sourcesare deemed reliable, the information that follows should not be relied upon for preparing tax returns ormaking investment decisions. This information has neither been audited by nor verified by the company,or companies, listed below and is therefore not guaranteed by them as to its accuracy.

If a numerical analysis is shown, the results are neither guarantees nor projections, and actualresults may differ significantly. Any assumptions as to interest rates, rates of return, inflation, orother values are hypothetical and for illustrative purposes only. Rates of return shown are notindicative of any particular investment, and will vary over time. Any reference to past performanceis not indicative of future results and should not be taken as a guaranteed projection of actualreturns from any recommended investment.



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Patient Protection and Affordable Care Act Highlights The Patient Protection and Affordable Care Act (PPACA) was signed into law by President Barack Obama on March 23, 2010. A companion package of “fixes” to PPACA, the Health Care and Education Reconciliation Act (HCERA), was signed by the President on March 30, 2010. Taken together, these two bills make the most profound changes to our country’s private-market health care system in 50 years.

Many provisions of the new health reform law will impact American employers and private health consumers very soon, while others take effect over the course of the next eight years.1 For a number of provisions, the actual application and operation of the new law will remain hazy until the federal government creates and issues detailed regulations.

Highlights of Interest to Individuals Beginning in 2014, federal law requires that most U.S. citizens and legal resident aliens, and their dependents, be covered by health insurance, what the law calls “minimum essential coverage.” Failure to maintain such coverage will generally result in a monetary penalty, sometimes referred to as a “shared responsibility payment.”

• Minimum Essential Coverage: Includes government-sponsored programs such as Medicare, Medicaid, Children’s Health Insurance Program (CHIP), Tricare for Life, military and veterans’ health care, and health care for Peace Corps volunteers. The term embraces employer-sponsored plans such as certain governmental plans, church plans, “grandfathered” plans, and other group health plans offered in the small or large group market within a state. It also includes individual market plans and other plans or programs recognized by the Secretary of Health and Human Services.

• Exempt individuals: Certain individuals are exempt from the requirement to maintain health insurance coverage. These include prisoners, undocumented aliens, members of a health care sharing ministry,2 and members of certain recognized religious sects. Individuals living outside the U.S. are deemed to maintain minimum essential coverage.

• Penalty exemptions: Some individuals are exempt from any penalty that might apply, including those whose required contribution for employer-sponsored coverage exceeds eight percent of household income, those whose household income is below the threshold for filing a federal income tax return, certain Native Americans, individuals with a “short” (up to three months) lapse in coverage,3 and those whom the Secretary of Health and Human Services determines have suffered a hardship with regard to maintaining health insurance coverage. By definition, dependents are exempt as the penalty is levied on the taxpayer claiming the income tax exemption for the dependent.

1 The discussion here concerns federal law. State and/or local law may differ. 2 A health care sharing ministry (HCSM), generally, is a nonprofit religious organization in which the members share their medical

expenses. An HCSM must meet certain requirements to qualify its members for this exemption. 3 Only one short-term lapse per calendar year is exempted from the penalty.



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Patient Protection and Affordable Care Act Highlights • Penalty amount: The penalty is calculated on a monthly basis (months when there is no qualifying

health insurance coverage) and is equal to the greater of (1) a specified percentage of the taxpayer’s annual household income over the income tax filing threshold for the taxpayer for the year, or (2) a flat dollar amount per uninsured adult in the household. The fee for an uninsured individual under age 18 is one-half of the adult fee. The table below shows the annual percentages and flat dollar amounts for calendar years 2014-2016. For years after 2016, the percentage of income value remains unchanged, but the flat dollar amount will be indexed for inflation.

Shared Responsibility Penalty Year Flat Dollar Amount1 % of Income1 2014 $95 1.0 2015 325 2.0 2016 695 2.5

Two other limits apply:

• The total annual household penalty may not exceed 300% of the per adult penalty, and • The total annual household payment may not exceed the nation average annual premium for “bronze”

level health coverage offered through the local American Health Benefit Exchange (AHBE).

The tables on the following pages summarize important changes for individual taxpayers:

Item Summary American Health Benefit Exchange (Effective 2014)

By 2014, each state is required to establish an American Health Benefit Exchange (AHBE) and a Small Business Health Options (SHOP) Exchange. A state may create separate exchanges for different regions within the state, or contiguous states can join together to create a single exchange. The primary purpose of these exchanges is to create a marketplace where individuals and small (initially, 100 employees or less) businesses can shop for “qualified” health insurance coverage. Such qualified coverage must include certain categories of benefits and meet specified cost-sharing and level-of-coverage standards, the “essential health benefits package.” The scope of essential health benefits must be equal to the scope of benefits provided under a typical employer plan. Qualifying health plans must provide specified levels of coverage, actuarially equivalent to a certain percentage of the full actuarial value of the benefits provided under the plan: Bronze Level = 60%; Silver Level = 70%; Gold Level = 80%; and Platinum Level = 90%. The legislation also provides for “catastrophic” policies (individual market only) for enrollees under age 30 or those who are exempt from the minimum health care coverage requirements because coverage is unaffordable or because of a hardship.

1 Annual amounts are shown. For monthly amounts, divide the annual value by 12.



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Patient Protection and Affordable Care Act Highlights

Item Summary Refundable Premium Assistance Credit (Effective 2014)

The premium assistance credit is a refundable tax credit for eligible individuals and their families who purchase health insurance through an AHBE. Under this provision, an eligible individual enrolls in a health plan offered through an AHBE and reports his or her income to the exchange. The individual then receives a premium assistance credit based on income. The U.S. Treasury pays the premium assistance credit amount directly to the insurance company, with the individual responsible for paying any remaining premium. This credit is available for those with household incomes between 100% and 400% of the Federal Poverty Level (FPL) for the family size involved, and who do not, generally, receive health insurance through an employer-sponsored health plan. The amount that an eligible individual is expected to pay for health insurance ranges from 2.0% for those at 100% of FPL, to 9.5% for those at 400% of FPL. In future years, these percentages will be adjusted to hold steady the share of premiums that enrollees at a given poverty level pay.

Cost-Sharing Subsidy (Effective 2014)

Certain individuals who enroll in a health plan through an AHBE may also qualify for a cost-sharing subsidy. Such a subsidy reduces the dollar amount of out-of-pocket expenses (deductibles, co-payments, or co-insurance) that the eligible individual might otherwise pay for essential health services. The subsidy is generally limited to those whose household income is between 100% and 400% of FPL for the family size involved and is only available for those months when the individual qualifies for a premium assistance credit.

Free Choice Vouchers (Effective 2014)

Employers offering minimum essential health coverage through an eligible employer-sponsored plan, and paying a portion of that coverage, must provide certain employees with a voucher whose value can be used to purchase a health plan through an AHBE. Qualified employees for this purpose are those who do not participate in the employer’s health plan and whose required contribution for employer-sponsored minimum essential coverage exceeds 8%, but does not exceed 9.8%, of the employee’s household income. Further, the employee’s total household income may not exceed 400% of the FPL. The voucher’s value is equal to the dollar value of the employer contribution to the employer-offered health plan. If the value of the voucher exceeds the cost of the Exchange plan chosen, the individual keeps (and is taxed on) the excess. This provision of the PPACA was repealed under the Department of Defense and Full-Year Continuing Appropriations Act, 2011 (H.R.1473).



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Item Summary Health Benefits for Children Under Age 27 (Effective 2010)

Under federal income tax law, a taxpayer, spouse, and “dependents” may receive health care benefits in a tax-advantaged fashion through a number of arrangements, usually by excluding benefits or payments from income or by allowing a deduction for medical expenses or premiums. Under prior law, the definition of “dependent” for these health benefits purposes generally followed the definition of “dependent” for the purposes of claiming an exemption on the income tax return. The new legislation amends the definition of “dependent” for health or medical benefits purposes to specifically include a taxpayer’s child (dependent or not) who is under age 27 at the end of the tax year.

Individuals With Pre-Existing Conditions (Effective 2010)

Establishes “high-risk” insurance pools to enable individuals with pre-existing medical conditions to purchase health insurance at rates parallel to those available for individuals without pre-existing conditions. Qualifying individuals will generally be eligible to purchase health coverage if they have not had health insurance for six months.

Children Under Age 19 With Pre-Existing Medical Conditions (Effective 2010)

Group health plans, grandfathered health plans, and health insurance issuers offering group or individual health insurance coverage may not impose any pre-existing condition exclusion on enrollees who are under age 19.

Medicare (Effective 2010-2020)

In 2010, Medicare beneficiaries with Part D (prescription drug) coverage who reach the “donut hole” coverage gap will receive a one-time payment of $250. In 2011, drug manufacturers will be required to provide a 50% discount on name-brand medications, the first step in a gradual reduction in the coverage gap. By 2020, the portion payable by a Medicare enrollee in the coverage gap will shrink from 100% to 25%.

Medicaid Changes (Effective 2014)

Expands eligibility for Medicaid to individuals not currently eligible for Medicare (generally, individuals under age 65), including children, pregnant women, and adults without dependent children, with incomes up to 133% of the federal poverty level (FPL). Coverage will be provided through an essential health benefits package purchased through a state’s AHBE.

CLASS Act Long-Term Care Insurance (Effective 2011)

A new, long-term care insurance program, called “CLASS” Act (Community Living Assistance Services and Supports), may begin collecting taxes/premiums as early as 2011. Intended as a voluntary (“opt-out”) program offered by employers, premiums will be paid entirely by employees. The program will provide individuals with specified functional limitations a cash benefit of $50 per day or more. There is no lifetime limit on benefits and persons with greater needs in terms of the basic activities of daily living will receive higher benefits. This provision of the PPACA was repealed as a part of the American Taxpayer Relief Act of 2012.



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Item Summary Health Professional Student Loan Forgiveness Programs (Effective 2009)

Under federal income tax law, gross income generally includes the discharge of a taxpayer’s indebtedness. Under one exception to this general rule, gross income does not include amounts from the forgiveness of certain student loans, provided that the forgiveness is contingent on the student’s working for a certain period of time in certain professions. The new law expands an existing exception to exclude from gross income any amount received by an individual under any state loan repayment or loan forgiveness program that is intended to provide for the increased availability of health care services in underserved or health-professional shortage areas.

Health Benefits Provided By Indian Tribal Governments (Effective 2010)

This provision allows for an exclusion from gross income for the value of specified Indian tribe health care benefits provided to a member of an Indian tribe, his or her spouse, and dependents. The exclusion does not apply to any amount which may be deducted or excluded from gross income under any other provision of the Internal Revenue Code.

Marketing Reforms and Expanded Benefit Coverage (Various Years)

The new legislation contains significant marketing and coverage reforms, including guaranteeing that coverage will be both available and renewable, regardless of health status, and limiting the range of premiums a health insurer can charge.1 Health policies must meet comprehensive requirements for coverage and cost-sharing. Generally, no lifetime or annual limits on the dollar amount of benefits per insured are permitted and, except in cases of fraud or misrepresentation, a policy may not be cancelled once issued. Certain preventive health services must be covered without cost-sharing and policies must cover adult children until a child turns age 26.

Health Care Costs Reported on W-2 (Effective for 2011)

An employer must include on an employee’s W-2 form the entire cost of the employer-sponsored health coverage. Generally, this refers to the coverage under any group health plan made available to the employee by an employer which is excludable from the employee’s gross income. This reporting requirement does not change the tax-free treatment of the employer-provided health coverage. As originally passed, this requirement was applicable to W-2 forms to be issued in early 2012, for tax years beginning in 2011. The IRS later deferred this requirement for one year, to W-2 forms issued in January 2013 for calendar 2012. For small employers (those issuing less than 250 W-2 forms in the previous calendar year) the health-cost reporting requirement is suspended until “further guidance’ from the IRS. See IRS Notice 2012-9 for details.

1 Factors such as age, geographical area, tobacco use, or family or individual coverage may be considered.



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Patient Protection and Affordable Care Act Highlights Highlights of Interest to Business • Shared responsibility for employers: Federal law currently does not require that an employer offer

health insurance coverage to employees and dependents. However, beginning in 2014 (delayed until 2015), an applicable large employer (generally defined by having an average of at least 50 full-time employees in the preceding calendar year) who does not offer minimum essential coverage under an employer-sponsored plan for all its full-time employees, offers minimum essential coverage that is unaffordable (with a premium more than 9.5% of an employee’s household income), or that offers minimum essential coverage through a plan under which the plan’s share of total allowed costs of benefits is less than 60%, may be subject to a non-deductible excise penalty tax.

The penalty is payable if at least one full-time employee is certified to the employer as having enrolled in health insurance coverage purchased through an AHBE and with respect to which a premium assistance credit or cost-sharing subsidy applies.

A similar excise penalty tax also applies to an employer who offers its full-time employees and their dependents the opportunity to enroll in minimum essential coverage under an employer-sponsored plan and any full-time employee is certified as having enrolled in health insurance coverage purchased through an AHBE and with respect to which a premium assistance credit or cost-sharing subsidy applies.

Most employers providing minimum essential coverage will be required to report certain health insurance coverage information to both its full-time employees and the IRS. If these reporting requirements are not met, failure to file penalties will apply.

• Small business tax credit: Under this provision, which is applicable to premiums paid after December 31, 2009, a tax credit is available to a qualified small employer for nonelective contributions to purchase health insurance for its employees. For this purpose, a qualified small employer is, generally, an employer with no more than 25 full-time equivalent employees (FTEs) during the year, and whose annual full-time equivalent wages average no more than $50,000. Certain employees (2% S Corp. shareholders and more than 5% owners, spouses, and children) are not included in the definition of “full-time” employee. Neither are seasonal employees who work 120 days or less during the year.

The credit is equal to an “applicable tax credit amount” times the lesser of: (1) the amount of contributions the employer made on behalf of employees for qualifying health coverage, or (2) the amount of premiums the employer would have paid had each employee enrolled in coverage with a small business benchmark premium.

The credit is available in two phases. For any taxable year beginning in 2010 – 2013, the applicable tax credit amount is 35% and generally applies to health coverage purchased from an insurance company licensed under local state law. For taxable years beginning after 2013, the applicable tax credit amount is 50% and applies only to health insurance coverage purchased through an AHBE. Additionally, during the second phase, the credit is only available for a maximum period of two consecutive years.

The credit is reduced for employers with more than 10 FTEs. It is also reduced for an employer for whom average wages per employee is between $25,000 and $50,000.



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Certain tax-exempt organizations are also eligible to receive the credit. However, for these tax-exempt employers, the applicable credit percentage in the first phase (2010 – 2013) is limited to 25% and the applicable credit percentage in the second phase (after 2013) is limited to 35%.

• Simple cafeteria plans for small business: A “cafeteria” plan is an employer-sponsored plan under which participating employees may choose from two or more options, consisting of cash or certain “qualified” benefits, such as health insurance, dependent care, or health flexible spending accounts. If an employer is unable to pay for these fringe benefits, the employee can enter into a salary-reduction agreement with the employer. The employer then uses these funds to pay for the employee’s benefits, effectively allowing the employee to pay for his or her own benefits with pre-tax dollars.

Cafeteria plans are, however, subject to complex nondiscrimination requirements to prevent discrimination in favor of highly compensated individuals. Beginning in 2011, the new law provides eligible small employers (generally with less than 100 employees during any of the two preceding years) with a simplified “safe harbor” method of meeting these nondiscrimination requirements.

• Early retiree health benefits: Effective in 2010, one provision of the law establishes a temporary reinsurance program for employers that provide retiree health coverage for employees over age 55 and less than age 65. If a plan spends more than $15,000 a year on medical or prescription drug benefits for an early retiree or a dependent, the plan can be reimbursed 80% of the excess, up to a maximum reimbursement of $60,000. Employers may use the reimbursements to reduce retiree cost-sharing. The program will end in 2014 or when $5 billion has been reimbursed, whichever comes first.

Item Summary Additional Medicare Hospital Insurance (HI) Tax on High-Income Taxpayers (Effective 2013)

Under current law, an employee is liable for a Medicare Hospital Insurance (HI) tax equal to 1.45% of his or her covered wages. Self-employed individuals are subject to a HI tax of 2.9% of net self-employment income. Beginning in 2013, taxpayers with incomes above certain thresholds will pay an additional HI tax of .9%. For an employee, the additional .9% effectively increases the HI tax from 1.45% to 2.35% on income in excess of the applicable threshold.1 For self-employed taxpayers, the additional, tax of .9% effectively raises the HI rate to 3.8% of net self-employment income in excess of the applicable threshold. For self-employed individuals, the additional .9% HI tax is not deductible. The thresholds are $250,000 in case of a joint return (the earnings of both spouses are considered) or a surviving spouse, $125,000 in the case of a married individual filing a separate return, and $200,000 for any other taxpayer.

1 The employer also pays a HI tax of 1.45%, which does not change under the new law.



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Patient Protection and Affordable Care Act Highlights Revenue Provisions Many provisions of the new legislation raise additional tax revenue:

Item Summary Unearned Income Medicare Contribution (Effective 2013)

The new legislation imposes a 3.8% unearned income Medicare contribution tax on individuals, estates, and certain trusts. For individuals, the tax is 3.8% of the lesser of net investment income or the excess of modified adjusted gross income over a threshold amount. This threshold is $250,000 in the case of a joint return or a surviving spouse, $125,000 in the case of a married individual filing a separate return, and $200,000 in any other case. In the case of an estate or trust, the tax is 3.8% of the lesser of undistributed net investment income or the excess of adjusted gross income over the dollar amount at which the highest income tax bracket applicable to an estate or trust begins. Investment income, generally, refers to (1) income from interest, dividends, annuities, royalties and rents; (2) gross income from a business to which the tax applies (such as income from “passive” activities); and (3) the net gain from the disposition of certain property. The term does not include distributions from IRAs and other qualified retirement plans.

Itemized Deduction for Medical Expenses Effective 2013)

Under current law, an individual is allowed an itemized deduction for regular tax purposes1 for unreimbursed medical expenses to the extent that such expenses exceed 7.5% of Adjusted Gross Income (AGI). Beginning in 2013, the new legislation increases the threshold for the itemized deduction for unreimbursed medical expenses from 7.5% of AGI to 10% of AGI. However, for the years 2013, 2014, 2015, and 2016, if either a taxpayer or spouse is age 65 before the end of the taxable year, the threshold remains at 7.5%.

Limitation on Health Flexible Spending Arrangements Under Cafeteria Plans (Effective 2013)

A flexible spending arrangement for medical expenses under a cafeteria plan (Health FSA) is health coverage in the form of an unfunded arrangement under which employees are given the option to reduce their current cash compensation and instead have the amount of the salary reduction made available for use in reimbursing the employee for his or her qualified medical expenses. Such an arrangement effectively allows the employee to pay for his or her own health benefits with pre-tax dollars. Under the new legislation, in order for a Health FSA to be a qualified benefit (and thus be excluded from an employee’s income), the maximum amount available for reimbursement of incurred medical expenses must not exceed $2,500 (adjusted for inflation in future years.)

1 For purposes of the Alternative Minimum Tax (AMT), unreimbursed medical expenses are deductible only to the extent that they exceed 10% of AGI. The new law does not change the current AMT treatment of the itemized deduction for unreimbursed medical expenses.



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Item Summary Additional Tax on Nonqualified Distributions From HSAs and Archer MSAs (Effective 2011)

Health Savings Accounts (HSAs) and Archer Medical Savings Accounts (MSAs) are similar forms of either a tax-exempt trust or a custodial account to which tax-deductible contributions may be made to benefit individuals with a high-deductible health plan. Distributions from HSAs and MSAs used for qualified medical expenses are excludible from gross income. Under prior law, distributions from HSAs that were not used for qualified medical expenses were subject to an additional 10% tax. Non-qualifying distributions from MSAs were subject to an additional 15% tax. The new legislation increases to 20% the additional tax on non-qualifying distributions from both HSAs and MSAs.

Distributions for Medicines Qualified Only if for Prescribed Drug or Insulin (Effective 2011)

Under prior law, generally, a qualified expense for the purpose of Health Reimbursement Arrangements (HRAs), Archer Medical Savings Accounts (MSAs), Health Savings Accounts (HSAs), and Health Flexible Spending Accounts (Health FSAs) included amounts paid for over-the-counter medications. Under the new legislation, the cost of over-the-counter medications may not be reimbursed with excludible income through an HRA, MSA, HSA, or Health FSA unless prescribed by a physician.

Excise Tax on Tanning Salons (Effective 2010)

This new provision imposes a 10% excise tax on individuals receiving indoor tanning services. If the tax is not paid by the person receiving the services, the person performing the services pays the tax.

Excise Tax on High-Cost Employer-Sponsored Health Coverage1 (Effective 2018)

This provision imposes an excise tax on health insurers if the aggregate value of employer-sponsored health insurance coverage for an employee exceeds certain limits. The tax is equal to 40% of the aggregate value above a specified threshold amount. For 2018, the threshold amount (subject to adjustment for inflation) is $10,200 annually for individual coverage and $27,500 annually for family coverage. For individuals in high-risk professions, and certain retirees age 55 and older who are not eligible for Medicare, higher thresholds will apply. For these individuals, the threshold in 2018 will be $11,850 annually for individual coverage and $30,950 annually for families. The tax is not paid by the employee, but is imposed pro-rata on issuers of the insurance.

1 Popularly known as “Cadillac” health plans.



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Item Summary Retiree Prescription Drug Plans (Effective 2013)

Certain sponsors of qualified retiree prescription drug plans are eligible for subsidy payments from the federal government with respect to a portion of each qualified covered retiree’s gross covered prescription drug costs. Under prior law, the subsidy payment was not taken into account for the purpose of determining the allowable deduction for retiree prescription drug expenses. Under the new legislation, the amount otherwise allowable as a deduction for retiree prescription drug expenses is reduced by the amount of the excludable subsidy payments received.

Other Fees and Excise Taxes (Various Years)

The new legislation imposes a series of aggregate, annual fees on certain organizations involved in the health care industry. For pharmaceutical manufacturers and importers, for example, the 2011 fee is $2.5 billion. The aggregate fee will be apportioned among the covered entitles each year based on an entity’s relative share of prescription drug sales. A fee also applies to any covered entity engaged in the business of providing health insurance in the U.S. For 2014, the aggregate annual fee is $8 billion, and will be apportioned among the providers based on a ratio designed to reflect the relative market share of the U. S. health insurance business. Beginning in 2013, an excise tax of 2.3% will be imposed on the sale of any taxable medical device. A taxable medical device is any device, defined in section 201(h) of the Federal Food, Drug, and Cosmetic act, intended for humans. The excise tax does not apply to eyeglasses, contact lenses, hearing aids, and any other medical device determined to be of a type that is generally purchased by the general public at retail for individual use.

Other Legislative Changes A number of other legislative changes – unrelated to health care – were also included:

• Economic substance doctrine codified: Federal law provides detailed rules which permit both taxpayers and the government to compute taxable income with reasonable accuracy and predictability. In addition to these statutory provisions, the courts have developed several common-law doctrines which can be applied to deny the tax benefits of a tax-motivated transaction, notwithstanding that the transaction may satisfy the literal requirements of a specific tax provision.

One common-law doctrine applied over the years is the “economic substance” doctrine. In general, this doctrine denies tax benefits arising from transactions that do not result in a meaningful change in the taxpayer’s economic position other than a purported reduction in federal income tax.



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Effective on the date of enactment (March 30, 2010), this new legislation codifies this common-law doctrine and provides that in the case of any transaction to which the economic substance doctrine is relevant, such transaction is treated as having economic substance only if (1) the transaction changes in a meaningful way the taxpayer’s economic position, and (2) the taxpayer has a substantial purpose (apart from tax reduction) for entering into such transaction. Accuracy related penalties of either 20% or 40% may be imposed, depending on the level of disclosure by the taxpayer.

• Adoption credit and employer-provided adoption assistance: For 2010, the new legislation increases the maximum adoption credit by $1,000, to $13,170 per child. This amount, and the phase-out limits applicable to higher-income taxpayers, are subject to adjustment for inflation in 2011. Additionally, the adoption credit is made refundable. Similarly, the maximum income exclusion for benefits received through an employer-sponsored adoption assistance program was increased for 2010 to $13,170 per eligible child, with adjustments for inflation for the dollar amount and phase-out limits in 2011. The EGTRRA1 sunset provisions for both the adoption credit and the income exclusion for adoption assistance program benefits have been delayed one year, to taxable years beginning after December 31, 2011.

• Additional information reporting: Beginning in 2012, a business is generally required to file an information return for all payments aggregating $600 or more in a calendar year to a single payee, other than a payee that is a tax-exempt corporation, for property or services. Most of the expanded reporting requirements were effectively repealed under The Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act of 2011.

Seek Professional Guidance The provisions of the PPACA and the HCERA are complex and touch on a wide-range of subjects. To get the maximum benefit from these new laws, the help and guidance of experienced professionals from a number of disciplines is highly recommended.

1 “EGTRRA” refers to the Economic Growth and Tax Relief Reconciliation Act of 2001.



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Patient Protection and Affordable Care Act Timeline The Patient Protection and Affordable Care Act (PPACA), was signed into law by President Barack Obama on March 23, 2010. A companion package of “fixes” to PPACA, the Health Care and Education Reconciliation Act (HCERA), was signed by the President on March 30, 2010.

Many provisions of the new law are effective in 2010, while others become law during the years 2011 to 2018.1 The following pages list the legal effective dates for selected provisions of this new legislation. Note that the actual implementation date may not be the same due to the number of steps required to make a particular provision operational.

In many instances, the legislation is applicable to group plans, “for plan years beginning on or after” a particular date. Since many group plans follow a calendar year, a provision that becomes legally effective in one year may not actually be implemented by a group plan until the following calendar year.

Provisions Effective In 2009 • January 1, 2009

• Expanded exclusion for specified health professionals in certain state student-loan repayment programs.


• $250 one-time payment for a Medicare beneficiary enrolled in Medicare Part D who reaches the coverage gap of $2,830 for the year (2010 only).

• Small business tax credit for nonelective employer contributions to purchase employee health insurance.

• Expanded adoption credit and gross income exclusion for employer-provided adoption assistance programs.

• March 23, 2010

• Exclusion from gross income of health benefits provided by Indian tribal governments.

• March 30, 2010

• Codification of “Economic Substance” doctrine, with associated penalties. • Revised definition of “dependent” for purposes of employer-provided health benefits, to include a

child (dependent or not) under age 27 at the end of the tax year.

• June 23, 2010

• High-risk insurance pools for individuals with pre-existing conditions. • Temporary reinsurance program for employers that provide early retiree health coverage.

1 The discussion here concerns federal law. State and/or local law may differ.



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Patient Protection and Affordable Care Act Timeline Provisions Effective in 2010 (continued) • July 1, 2010

• 10% excise tax on indoor tanning services.

• September 23, 2010

• Extension of health coverage to include adult children up to age 26. • No pre-existing condition exclusion for children under age 19. • No lifetime limit on the dollar value of essential health benefits. • Policies may not be cancelled if policyholder becomes sick. • Certain preventive health care coverages are required.


• Employers required to report the total cost of employer-provided health care on an employee’s W-2 form.1

• Increase to 20% of the additional tax on nonqualified distributions from HSAs and Archer MSAs. • Distributions from HSAs, Archer MSAs, HRAs, or Health FSAs for over-the counter medicines are

considered a “qualified” expense only if prescribed by a physician. • Collection of premiums for CLASS Act long-term care program may begin. (Repealed) • Simple cafeteria plans may be established by small employers. • Annual fees levied on branded prescription drug manufacturers and importers.

Provisions Effective in 2012 • January 1, 2012

• Additional information reporting by a business of payments of $600 or more to a single payee, for property or services. (Repealed)


• 0.9% additional Hospital Insurance (Medicare) tax on high-income taxpayers. • 3.8% unearned income Medicare contribution. • Threshold for itemized deduction of unreimbursed medical expenses generally increased to 10%. • $2,500 reimbursement limitation on Health FSAs under cafeteria plans. • Business deduction for federal subsidies for retiree prescription drug plans repealed. • 2.3% excise tax on the sale of certain medical devices.

1 This provision was later delayed by the IRS for one year, to W-2 forms issued in January 2013 for calendar 2012. For small employers (less than 250 W-2s) the health-cost reporting requirement is suspended until “further guidance” from the IRS.



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Patient Protection and Affordable Care Act Timeline Provisions Effective In 2014 • January 1, 2014

• Minimum essential health coverage required for most U.S. citizens and lawful resident aliens, with monetary penalties for non-compliance.

• No pre-existing condition exclusion for adults. • States required to establish American Health Benefit Exchanges (AHBE) and Small Business

Health Options Program (SHOP) Exchanges. • Refundable premium tax credit for eligible individuals who purchase health insurance through an

AHBE. • Cost-sharing subsidies become available to qualified individuals who purchase health insurance

through an AHBE. • Free Choice vouchers available to qualifying employees to purchase health coverage.

(Repealed) • Expanded Medicaid coverage, to include certain groups with household incomes up to 133% of

the federal poverty level. • Shared responsibility for employers. Certain employers are required to offer health insurance

coverage to employees, with non-deductible excise tax penalty for non-compliance. (Penalty enforcement delayed until 2015)

• Annual fees levied on health insurance providers.


• 40% excise tax on high-cost (“Cadillac”) health plans.



affordable care act details

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