ACA FROM THREE PERSPECTIVES

PROVIDER TAXPAYER

TAX PREPARER

OBAMACARE HOW WE GOT HERE!

• 1935 Social Security• 1942 Price Controls• 1965 Medicare/Retrospective Cost Based Reimbursement

– 1967-1983 costs rose from $3 Billion to $37 Billion annually – 2010 costs $560 Billion – Estimated 2022 costs $1 Trillion

• 1983 Medicare/DRG Prospective Payment System• 2005 Medicare part D (Donut Hole)• 2010 Affordable Care Act (ACA)

OBAMACARE FACTSAFFORDABLE CARE ACT (ACA)

Signed into law to reform the health care industry by President Obama on March 23, 2010 and upheld by the Supreme Court on June 28, 2012• Expands the affordability, quality,and availability of private and publichealth insurance through consumerprotections, regulations, subsidies, taxes, insurance exchanges, and other reforms • Does not replace private insurance,Medicare or Medicaid

WHAT’S NEW WITH OBAMACARE?TIMELINE OF SORTS

2014 2018 2020Pre-existing conditions can not be denied.

40% tax would be imposed on insurance companies providing “Cadillac” health plans valued at more than $10,200 for individual and $27,500 for families

“Donut Hole” Medicare RX benefit gap ends. Seniors continue to pay the 25% of drug costs until they reach the threshold for Medicare catastrophic coverage, when their copays drop to 5%

Fines begin if you don’t have coverage.

Higher rates allowed on basis of residence, family size & tobacco use

Current law:Donut Hole is when Medicare stops coverage of drugs after a plan spends $2,830 on RX. It starts to pay again after an individual exceeds $4,550 out of pocket. Gap is $1,720

Full Time defined as 30 hours per week

All group plans must be certified and provide a required minimum benefits

Medicaid expanded to cover up to 133% of poverty line ($29,300 for a family of 4)

HIGHLIGHTS OF THE ACA

• Expand healthcare coverage to 32 Million uninsured Americans• Slow down the rising cost of healthcare• Requires Essential Health Benefits in insurance plans• Closes the Medicare part D gap (Donut Hole)• Expands Medicaid coverage

BASICS OF OBAMACARE

1. No discrimination based on gender2. Insurance companies can not take away insurance because people get

sick3. Insurance companies have to justify increases in cost4. All Americans can purchase or be provided insurance based on their

income and employment 5. Americans can not be denied coverage based on pre-existing conditions 6. No co-pays for key medical expenses 7. No annual or lifetime limits 8. Small businesses will receive tax credits for providing insurance9. Young adults stay on their parents plan until there are 26

10 ESSENTIAL HEALTH BENEFITS

1) Ambulatory services2) Emergency services3) Hospitalization4) Maternity and newborn care5) Mental health and substance abuse6) Prescription drugs 7) Rehab services and devices8) Laboratory services 9) Preventative and wellness services10) Pediatric services including oral and vision care

MASSACHUSETTS HEALTH REFORM

Created in 2006; implemented July 1, 2007 Lowest rate of uninsured in the Country Residents have experienced gains in access to

healthcare and preventative services Per capita spending is 15% higher than the national

average Highest individual market premiums in the Country Massachusetts must make changes to comply with

Obamacare Subsidy for individuals with income

below 300% FPL The supply of primary care physicians is a big issue(Source Kaiser Family Foundation )

A CASE TO STUDY

ISSUES PROVIDERS WILL FACE

Improving Quality Cost to track quality Follow up with discharged patients Denied charges

Inpatient Value Based Purchasing Program ACA’s main pay for performance quality

improvement mechanism Re-admission Penalties

Hospital Re-Admission Reduction Program

• Penalizes hospitals with high 30-day re-admission rates

• Penalty of Medicare reimbursement

• 2013 max. penalty is 1%• 2014 max. penalty is 2% • 2015 max. penalty is 3%

•2013 – 2/3 of hospitals were penalized

ISSUES PROVIDERS WILL FACE

AKA Reimbursement Adjustment Based on Quality • Large practices are subject in 2015• Small practices are subject in 2017

PHYSICIAN VALUE BASED PAYMENT MODIFIER PROGRAM

ISSUES PROVIDERS WILL FACE

Electronic Health Record (EHR) Meaningful Use

We will continue to face issues in meeting stage 1-3 requirements and incurring a large expense to do so.

ELECTRONIC HEALTH RECORD

ISSUES PROVIDERS WILL FACE

Deductibles are rising! This creates more collection efforts, increased staff, less reimbursement and higher bad debt.

Patients will begin to ration their own care due to out of pocket costs.

Less Reimbursement = Less EverythingWhere do you cut costs?- FTEs- Benefits- Raises- Other cuts…

RISING DEDUCTIBLES

ISSUES PROVIDERS WILL FACE

The focus must be on the patient as a whole rather than an episode of care.

How do we do that?Who do we partner with?How much will it cost in the early

years?Community Hospitals will begin to eliminate services that become unprofitable

example: OB services Hospitals and Physicians must start working together!

COOPERATION CRITICAL

ISSUES PROVIDERS WILL FACE

• 2% Medicare DRG payment reduction • Sequestration• Medicare disproportionate share cuts

• 25% is still paid as it was historically• 75% will fund a pool to be distributed based on Medicare and

Medicaid inpatient days • Pool has been reduced $546 million

Are we moving toward alternate forms of payment including pay for performance, bundled payments, capitation, or even a single payor system???

OBAMACARE MEDICAID EXPANSION

• Original law called for expansion in every state – Supreme court ruling allowed

states to opt out • Expanded Medicaid plan

would expand coverage to citizens at 138% of FPL

• Alabama has opted out• Different studies project

different results for Alabama

Q. MedicaidWhat if you are on Medicaid, in a state that did not expand Medicaid?

A. If you are in one of states not expanding Medicaid, you won't have the benefit of the law which expanded coverage of program to everyone under 138% of poverty rate or about $15,800 for an individual. States can still expand in future years. You are not eligible for subsidies in the exchange until your income is at the federal poverty rate of $11,500

OBAMACARE NEW KEY TAXES /BREAKS IN THE AFFORDABLE CARE ACT

• Individual Mandate (new tax)– Every individual must have coverage, get an exemption or pay a per month

fee• Employer Mandate (new tax)

– In 2015 large employers must insure full time employees or pay a per employee fee

• Additional Individual Taxes • Advanced Premium Tax Credits

– low-to-middle income Americans are eligible for a tax credit which reduce the upfront cost of premiums on health insurance purchased through an exchange

• Small Business Tax Credits – Small businesses may be eligible for tax credits of up to 50% of their cost of

employee premiums through the Small Business Health Options Program

WHAT IS THE INDIVIDUAL MANDATE?

• Requires all citizens and legal residents to have health coverage in 2014

• Health coverage includes:– Medicare– Tricare– Veterans Health Program – Employer offered health plans– Medicaid or the CHIP– Grandfathered health plan– Bronze level or better purchased on your own

INDIVIDUAL MANDATEMANDATE DOES NOT APPLY TO:

• Mandate does not apply to:– Religious objectors– Undocumented immigrants– Incarcerated – American Indians and Alaskan Natives– Those with Income below tax filing threshold – Lowest cost plan exceeds 9.5% of your income

• Income of $20,000 and lowest cost plan after subsidy is more than $1900 per year

HEALTH INSURANCE PREMIUM TAX CREDIT

• Makes premiums affordable for individuals and families with lower income

• Available to individuals and families up to 400% of FPL (federal poverty level)

• Insured must apply through an exchange

2013 FEDERAL POVERTY LEVELS

FPL Annual Income – Individual

Annual Income – Family (3)

100% 11,496 19,536

133% 15,288 25,980

138% 15,864 26,952

200% 22,980 39,060

300% 34,476 58,596

400% 45,960 78,120

PREMIUM TAX CREDITS

Income Level Premium as a % of IncomeUp to 133% FPL 2% of income

133%-150% 3-4% of income

150%-200% 4-6.3% of income

200%-250% 6.3-8.05% of income

250%-300% 8.05-9.5% of income

300%-400% 9.5% of income

You must go through the marketplace to receive the subsidies.

THE PENALTIESINDIVIDUAL SHARED RESPONSIBILITY FEE

• 2014 the greater of $95 per adult and $47.50 per child ($285 max per family) or 1% of family income

• 2015 the greater of $325 per adult and $162.50 per child ($975 max per family) or 2% of family income

• 2016 the greater of $695 per adult and $347.50 per child ($2,085 max per family) or 2.5% of family income

• 2017 – inflation adjusted

I N D I V I D U A L M A N D AT E FO R TA X P R EPA R E RS

1. If a taxpayers income situation changes, the premium tax credit may be overstated

2. The penalty is calculated on your MAGI (AGI with certain deductions added back)

3. The penalty is calculated in 1/12 for partial years lacking coverage 4. Anyone with a “gap” in coverage for three months or less is exempt

from the tax penalty5. The penalty is paid on your income tax return at the end of the year 6. Health insurance plans will provide “proof of coverage”7. Maximum penalty per family is capped at no more than 300% of

the minimum penalty

SIGNING UP THROUGH THE MARKETPLACE

• Alabama does not have a state exchange – chose to use the Federal marketplace

• Use the website www.healthcare.gov to sign up • Open enrollment was from 10/1/2013 – 3/31/14 however extended to 4/15/14• Next enrollment period begins 11/15/14 • Special enrollment period for:

– Getting married – Having or adopting a child – Moving to a new area with different health plan options – Losing other health coverage – Change in income or marital status for premium credit changes – Becoming a citizen

OBAMACARE AND SMALL BUSINESSSMALL EMPLOYER HEALTH PREMIUM CREDIT

• Three conditions must be met– FTE’s under 25– Avg. wage per employee under $50K– Employer pays at least 50% of a premium for a QHP for at least one

employee • 2010-2013

– 35% credit, 25% for not-for-profits • 2014-2015

– 50% credit, 35% for not-for-profits • 2014, the health insurance must be purchased through the Small

Business Health Option Program (SHOP)

www.churchtaxcredit.com

EMPLOYER MANDATE

Small businesses with more than 100 FTEs and avg. annual wages of more than $250,000 must provide health coverage to full time employees in 2015 Starting in 2016, employers with 50-99 FTEs will have to ensure their fulltime workforce FTE = 30 hours per week Coverage must provide minimum benefits (Bronze level)

THE PENALTIES

• The annual fee is $2K per full time employee if insurance isn’t offered

• The first 30 full time employees are exempt from the penalty

• If one full time employee receives the premium tax credit because insurance offered is subpar the employer must pay the lessor of $3K for each employee receiving the credit or $750 for each of their full time employees

• The fee is calculated per month and due annually • The fee is NOT tax deductible

EMPLOYER SHARED RESPONSIBILITY PAYMENT

NEW REQUIREMENTS FOR REPORTING

Beginning 2015: 1. you must file an annual return reporting whether and what

health insurance you offered your employees 2. if you provide self-insured health coverage, you must file an

annual plan reporting certain information for each employee you cover

3. You are required to report the value of health insurance coverage you provided to each employee on his/her W-2 (box 12 code DD)

4. You must complete a form 1099 for all vendors. REPEALED

• Vendors who receive $600 or more in payments

THE TAXPAYER PERSPECTIVE

2.3% TAX ON MEDICAL DEVICE MANUFACTUERS

10% TAX ON INDOOR TANNING SERVICES

BC/BS TAX HIKETAX ON BRAND NAMED

DRUGS

TAXES THAT WILL NOT AFFECT THE AVERAGE INDIVIDUAL

NEW TAXES ON INDIVIDUALS

MEDICARE TAX ON INVESTMENT INCOME 3.8% MEDICARE PART A TAX INCREASE OF .9% 40% EXCISE TAX ON HIGH END PREMIUM HEALTH

INSURANCE PLANS (BEGINS 2018) ANNUAL $63 FEE LEVIED BY ACA ON ALL PLANS MEDICINE CABINET TAX ADDITIONAL TAX ON HSA/MSA DISTRIBUTIONS FOR NON

QUALIFIED MEDICAL EXPENSES FSA SPENDING ACCOUNT CAP MEDICAL ITEMIZED DEDUCTIONS ON SCHEDULE A GOINF

FROM 7.5% TO 10% WAIVED FOR 65 YO+ IN 2013-2016

ADDITIONAL MEDICARE TAX

Applies to wages and self-employment income– NOT used for Medicare– Tax is 0.9%– Married, filing jointly $250,000– Single, HOH, qualifying widow(er) $200,000– Employer is required to withhold for wages over $200,000– For higher earning MFJ, an adjustment to withholding or estimated

taxes may be necessary

FLEXIBLE SPENDING ACCOUNT CAP

Formally, Pre-tax funds used for medical expenses– Includes contact lenses, children’s braces, OTC drugs – Special needs children tuition was eligible– Unlimited cap

New, Pre-Tax funds used for medical expenses – Can not be used for OTC drugs – New Cap = $2500

HSA – HEALTH SPENDING ACCOUNT

• Like an IRA • Non-Medical withdrawals incur a 20% penalty • Contributions can be up to $3300 for individual or $6550 for family• 55 and older may add $1000 catch up • Min. annual deductible $1250/Single or $2500/Family • Max. out of pocket $6350/Single or $12,700/Family• Can withdraw excess at age 65• Tax free earnings if used for medical expenses • Rolls over year after year • www.hsacenter.com

MEDICAL LOSS RATIO (MLR)WILL THEY GIVE IT BACK?

• ACA REQUIRES 80-85% OF PREMIUMS BE SPENT ON HEALTHCARE SERVICES AND HEALTHCARE QUALITY IMPROVEMENTS

• REFUNDED PREMIUMS MAY BE TAXABLE – Refunded premiums reduce the insurance companies’ taxable income – The reduction year and/or an estimated reserve have yet to be

addressed– If the taxpayer did not claim a health insurance deduction on their

1040, it is not taxable – If the taxpayer deducted health insurance on their schedule A or as a

SEHI, then they must claim the refund as income– It’s unlikely the taxpayer will receive a form 1099-MISC – As a tax preparer, we should ask and report!

DEFINING THE NIIT

A 3.8% net investment income tax went into effect starting in 2013 for individuals, estates, and trusts that have investment income above certain threshold amounts.

NET INVESTMENT INCOME TAX

NET INVESTMENT INCOME TAX

Filing Status ThresholdMarried, filing jointly $250,000

Married, filing separately $125,000

Single $200,000

Head of Household $200,000

Qualifying Widow(er) $250,000

TAXPAYERS THAT MAKE MORE THAN $200,000-$250.000

MAGI Thresholds for the NIIT

NIIT

A. InterestB. DividendsC. Capital GainsD. Rental IncomeE. Royalty IncomeF. Non Qualified AnnuitiesG. Income from businesses involved in trading securitiesH. Income from a passive businessI. Gains from the sale of stocks, bonds, and mutual fundsJ. Capital Gain distributions from mutual fundsK. Gains from the sale of investment real estateL. Gains from the sale of interests in partnerships and S Corps

WHAT IS INCLUDED IN THE NIIT?

NIIT

A. WagesB. Unemployment compensation C. Operating income from a non-passive businessD. Social Security benefitsE. AlimonyF. Tax exempt interestG. Distributions from certain qualified plans (401A; 403B; 457B;

traditional IRA)

WHAT IS NOT INCLUDED IN THE NIIT?

HOW DOES THE 3.8% SURTAX WORK?MARRIED COUPLE WITH INCOME OVER $250K

ESTIMATED INCOME FROM NEW TAXESOVER NEXT 10 YEARS

Tax Estimated Income (Billions)NIIT $123

Medicare Payroll Tax $86

Individual Employer Mandate $65

Tax on Health Insurers $60.1

Excise Tax on Cadillac Plans $32

Biofuel Tax $23.6

Medical Device Manufacturing $20

Schedule A Medical Deduction $15.2

Tanning Tax $2.7

QUESTIONS?

Richard Byerly, CPA

Byerly & Associates 120 S Ross St

Auburn, AL 36830334-740-7037

byerlycpa@gmail.comwww.byerlycpa.com

www.churchtaxcredit.com