This year marks a pivotal time for the implementation of federal health-care reform as consumers face some key deadlines, including the requirement to obtain insurance coverage.
With the fundamental changes in the nation’s health-care system as well as the steady stream of media coverage, it is likely that clients will have many questions about the law and its potential impact on them.
Here are some considerations for different types of clients:
Clients with income exceeding $200,000 (or $250,000 for couples), need to consider planning for taxes such as the 3.8% surtax on net investment income and the extra 0.9% Medicare payroll tax this year. There are also tighter limits for those deducting out-of-pocket medical expenses. These deductions are now limited to expenses above 10% of adjusted gross income, instead of the 7.5% limit prior to 2013.
Small business owners, with fewer than 25 employees, may be eligible for a tax credit to help offset health insurance premiums. Business owners with 50 or more full-time employees will be subject to the employer mandate to purchase insurance or owe a penalty. Though the mandate was to be implemented in 2014, it was subsequently delayed until 2015, and delayed again for businesses with 50–99 employees until 2016. Business owners will have to determine if their existing coverage meets the new standards (for example, covers 60% of out-of-pocket costs) required by the law and decide whether or not they will offer health-care coverage in the future.
Clients with pre-existing medical conditions will likely benefit from the new law, especially those who are still employed full-time but looking to retire or transition to retirement prior to age 65, when they are eligible for Medicare. These clients may opt to stop working or reduce hours and be able to purchase health-care coverage via the health-care exchanges without the risk of being denied or facing extensive medical underwriting because of their condition. In this way, the new law may help them “bridge the gap” until they are eligible for Medicare benefits.
The new law eliminates Medicare coinsurance and deductibles for certain preventative services such as mammograms and colonoscopies. However, funding cuts to Medicare Advantage (MA) may result in higher MA premiums for some retirees or limited provider networks. While higher-income retirees (income above $85,000, $170,000 for couples) will see an increase in their Medicare Part D prescription drug coverage premiums, the so-called Medicare Part D “donut hole” is gradually closed. This will result in less out-of-pocket costs for many retirees. According to the Centers for Medicare and Medicaid Services (CMS), retirees saved an average of $866 in out-of-pocket costs during the first 10 months of 2013 due to this change.
Although some uncertainty continues to surround the health-care law, the individual mandate and new taxes associated with the law have been implemented. There are considerations for all clients and deadlines in effect for 2014. It’s important for clients to meet with an advisor or tax expert to understand how the law will affect their financial situation.