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What health care reform means for businesses, individuals

November 10, 2010

The ballyhooed health care-reform legislation became law March 23, but its aspects will be phased in between 2010 and 2018. According to the Congressional Budget Office and various media reports, individuals and businesses can expect the following from the Health Care and Education Affordability Reconciliation Act of 2010:

• Starting this year, small businesses will receive subsidies to provide health care coverage to employees. Subsidies will increase in 2014, when mandatory coverage goes into effect. Also in 2010, any lifetime caps on health coverage (frequently set between $1 million and $5 million) will be eliminated for both group and individual health plans. And, insurance companies will be barred from denying coverage to children with pre-existing conditions; and children will be allowed to stay on their parents’ insurance policies until their 26th birthday.

• Starting in 2011, employers will be required to disclose the cost of workers’ health coverage on their W-2’s. In addition, effective Jan. 1, 2011, over-the-counter drugs no longer can be reimbursed from a health care flexible spending account, health reimbursement account or health savings account unless prescribed by a physician.

• Starting in 2013, a new Medicare tax will be imposed on individuals earning more than $200,000 a year and on couples filing jointly who earn more than $250,000 a year. The Medicare tax on wages will increase from 1.45 percent to 2.35 percent; a new 3.8 percent tax on unearned income will go into effect; and an excise tax of 2.3 percent will be imposed on the sale of medical devices. Also in 2013, health care reimbursement account contributions will be limited to $2,500 per year, indexed annually.

• Starting in 2014, all U.S. citizens and legal residents will be required to purchase health insurance, with limited exceptions for low-income people. Individuals who choose to remain uninsured will incur a penalty. Those individuals who cannot afford health insurance will receive financial aid from the federal government on a sliding scale of up to 400 percent of the poverty line. Also employers with more than 50 employees that do not provide affordable coverage must pay a fine if their employees receive tax credits to buy insurance. The fine may be as much as $3,000 per employee, excluding the first 30 employees. In addition, the insurance industry must pay annual fees ($8 billion in 2014, rising in subsequent years).

• Starting in 2015, the penalty for those who do not carry mandated coverage will increase to 2.0 percent of taxable income or $325, whichever is greater, and the penalty in 2016 will increase to 2.5 percent of taxable income or $695, whichever is greater.

• Starting in 2017, businesses having more than 100 employees will be able to purchase coverage on insurance exchanges if state law permits.

• Starting in 2018, an excise tax of 40 percent will be imposed on so-called "Cadillac" health plans valued at more than $10,200 for individual coverage and $27,500 for family coverage.