HEALTH CARE REFORM BECOMES LAW
The Patient Protection and Affordable Care
Act (the “Act”, as amended) was recently signed into law. The
Act will affect nearly every individual and business in the U.S.
The Act generally requires most
individuals to have at least a minimum level of essential health
care coverage (or imposes penalties on individuals who fail to
do so). Under the new law, lower income individuals (with income
up to 400% of the poverty level) may be entitled to receive tax
credits and cost-sharing reductions to help pay for the
The Act also contains numerous provisions
Employer Shared Responsibility. While the Act does
not require employers to provide minimum essential health
coverage to employees, it encourages them to do so by offering
penalties and incentives.
Employer Penalty. The new law exacts a penalty on larger
employers (at least 50 full-time or full-time equivalent
employees during the prior year) who fail to provide adequate
coverage. If the employer doesn’t offer minimum essential
coverage to employees and at least one employee receives a
premium tax credit or cost-sharing reduction, it will be
assessed a penalty of $2,000 per full-time employee per year.
The Act excludes the first 30 employees from the penalty.
For those employers offering coverage where
the coverage is “unaffordable” or where the coverage has an
“actuarial value” of less than 60% of the cost of benefits, a
penalty will apply if at least one employee receives a premium
tax credit or cost-sharing reduction. The penalty is the
lesser of $3,000 for
each employee receiving the credit or reduction
or $2,000 multiplied
times the total number of full-time employees. Employers with
fewer than 50 full-time employees are exempt from the penalty
SHOP Exchanges. The Act creates state-based exchanges
(known as Small Business Health Options Program, or “SHOP”,
Exchanges) through which small businesses (up to 100 full-time
employees) can buy health care insurance coverage for employees
(and possibly save money by doing so).
Employer Tax Credit. The Act offers small employers
(generally those with no more than 25 full time employees and
paying average annual wages of no more than $50,000 per
employee) that purchase health insurance coverage for employees
a sliding-scale income-tax credit to help them pay for the plan.
Choice Vouchers. Employers that offer coverage to their
employees will be required to provide a “Free Choice Voucher” to
certain employees whose income is not more than 400% of the
federal poverty level under specified circumstances. The voucher
is generally equal to an amount the employer would have paid to
cover the employee under the employer’s plan.
Coverage. The Act allows personal or employer-provided
health benefit coverage existing at the time of enactment to
stay in place under a “grandfather” provision. The Act considers
the grandfathered coverage to meet the law’s individual coverage
mandate, if certain requirements are met.
The Act imposes Medicare tax increases on
higher income taxpayers.
Medicare Tax on Earnings. Individual taxpayers who earn more
than $200,000 a year, married taxpayers filing jointly who earn
more than $250,000, and married taxpayers filing separately who
earn more than $125,000 will have to pay an additional Medicare
tax equal to .9% of their wages over the relevant threshold
amount for their filing status. Self-employed individuals will
be liable for an additional
tax of .9% on self-employment income over certain thresholds. The
additional self-employment tax is not deductible.
Surtax on Investment Income. A 3.8% surtax will be imposed
on the investment income of higher income individuals, estates,
and trusts. For individuals, the tax is equal to 3.8% of the
lesser of (1) net
investment income for the year or (2) the amount by which
modified adjusted gross income exceeds the annual threshold
amounts specified above for the additional Medicare tax on
earnings. The thresholds are not inflation-adjusted. The 3.8%
surtax does not apply
to qualified retirement plan and individual retirement account
The new law contains many more provisions
that may affect you and your business. The good news is that,
while some provisions of the Act take effect in 2010, most of
the employer provisions go into effect later this decade. We
would be happy to consult with you on what the new law means to
you —today and tomorrow. Please let us know if we can be of