Quick Highlights of Health Care Legislation

The new health care legislation is massive - over 2000 pages.  It will be years before many questions are answered, but has an immediate effect on all of us.  I got this summary of quick highlights from Steven Kaplan, CPA, JD, LL.M at Sax Macy, Fromm & Co. and thought it did a great job of boiling down to the key points:

Penalty for remaining uninsured.
After December 31, 2013, taxpayers would have to maintain minimum coverage or pay a penalty.

Employer responsibilities.
After December 31, 2013, an employer that employs at least 50 full-time employees and does not offer health insurance coverage would have to pay a penalty.

Excise tax on high-cost employer-sponsored health coverage.
After December 31, 2017, the bill would place a 40% nondeductible excise tax on insurance companies for any health coverage plan to the extent that the annual premium exceeds $10,200 for single coverage and $27,500 for family coverage.

New employer reporting responsibilities.
After December 31, 2010, employers would have to disclose the value of the benefit for insurance coverage on the employee's W-2.

Additional hospital insurance tax (HI) for high-wage workers.
After December 31, 2012, the HI tax rate would be increased by 0.9 percentage points on an individual taxpayer earning over $200,000 ($250,000 for married couples filing jointly); these figures are not indexed. The current rate is 1.45%.

Surtax on unearned income.
After December 31, 2012, a 3.8% surtax would be placed on net investment income of a taxpayer earning over $200,000 ($250,000 for a joint return). Net investment income would be interest, dividends, royalties, rents, gross income from a trade or business involving passive activities, and net gain from disposition of property (other than property held in a trade or business).

Limit on health FSA contributions.
After December 31, 2012, contributions to health flexible spending accounts would be limited to $2,500 per year.

Increased tax on nonqualifying HSA or Archer MSA distributions.
After December 31, 2010, the additional tax for HSA withdrawals would be increased from 10% to 20% and for Archer MSA withdrawals would be increased from 15% to 20%. This applies to withdrawals for nonqualified medical expenses.

Modified threshold for claiming medical itemized deductions.
After December 31, 2012, the threshold for claiming an itemized deduction for medical expenses would be increased from 7.5% to 10% for those under age 65.

Image: m_bartosch / FreeDigitalPhotos.net

Could an Illness Wipe You Out? Bankuptcy Might Need to be Planned For

http://www.freedigitalphotos.net/images/view_photog.php?photogid=721 Christine Wilton has an insightful post "Are We Just One Injury or Illness Away From Bankruptcy?"  In it, she highlights the issue of what happens if you get ill, become disabled, and the insurance just isn't there.  If there bills are enough to completely wipe you out, what should you do?

This is particularly relevant to the retired.  This past week I got 2 separate inquiries about someone who either (1) did not sign up for Medicare at 65, or (2) didn't get a Medigap policy, all based on affordability issues.  They got sick, and now want coverage, but the coverage isn't there.  Both situations were not life threatening, but could wipe out the finances they had to provide for the rest of their lives.

First, what not to do.  Christine cautions against using credit cards or drawing down a home equity line to pay your medical bills.

If you're faced with medical debt, do not use your credit cards or home equity or any other financing to pay that debt. You're only adding interest to that debt and avoiding the most likely inevitable bankruptcy. What's worse is that if you use home equity, you could lose your home later if you fall behind on your mortgage."

Some things to do:

  1. Read your medical coverage and understand its limitations.  
  2. Use pre-tax dollars when possible to pay for care (at a 25% tax rate, this mean for every $100 you are spending the government is essentially kicking in $25 because you don't have to use the $25 for taxes).
  3. Try to settle your debt - the head in the sand approach won't make it go away.
  4. Speak to a qualified bankruptcy attorney to determine if that might be your best option, as well as all the drawbacks of going that route.

 Image courtesy of: http://www.freedigitalphotos.net/images/view_photog.php?photogid=721