The Patient Protection and Affordable Care Act represents the most sweeping overhaul of health care in the U.S. in decades and ranks with Social Security and Medicare in scope and impact on all Americans.
But since President Barack Obama signed the landmark piece of legislation in March, many questions are being asked about its impact. Concrete producers, both large and small, are like all other business in the U.S. in trying to figure out the details and its future impact.
While some parts of the new law took effect in 2010, others become effective from 2011 to 2018. Many uncertainties remain as to how much of the law will ultimately become effective. "A lot of the timing is subject to change, and a lot of provisions are going to get moved around," says Brian Stevens, president of West Bloomfield, Mich.-based Fortuna Partners Inc., a financial and business strategies firm.
Stevens added that Congressional elections and one presidential election between now and the main implementation in 2014 will also impact the final form of the legislation. For example, some Republicans who will retake control of the House of Representatives in January have vowed to roll back many provisions in the law.
Stevens and Michael Krause, president of Krause Benefits in Farmington Hills, Mich., believe one provision may have a major unexpected impact on small businesses: A minimum of 80% of all premiums must be spent on medical expenses. Krause added that most policies currently in effect are at 75% to 79%. Determining the definition of "medical expenses" will be an immediate issue. "Quit smoking programs? Nurse hotline programs? Nobody knows right now," says Stevens.Krause predicts health insurance companies will decrease the commissions they pay to health insurance agents to meet the 80% mandate is. He recognizes that initially most small businesses won't be upset about this.
However, the implications are much broader. Lower commissions to agents mean the health care agencies will likely decrease services to their customers-small businesses. "Services such as free enrollment assistance and even explaining benefits to employees will be curtailed," Krause says. "It is probable that many agents will go out of business, while others will, for the first time, levy service charges on their customers. Everyone loses-small businesses and the agents."
Also the new law mandates that states establish various insurance pools, either on their own or in combination with neighboring states. Stevens believes that the uncertainty everyone faces-employers, employees, state governments, and the existing health insurance companies-will push people to the government plans.
"Aetna has already announced they will no longer offer small group plans (2 to 50 participants) in Michigan effective Feb. 1, 2011, and will likely do the same in other states. This is going to lead to less competition and more employers gravitating to the government plans," Stevens predicts.
Krause adds that Principal Financial, which has offered small group health insurance plans, has announced it is "exiting the medical insurance business in the whole country."
While much is not known, the new law does establish a timeline of changes and milestones, several of which are highlighted below.
Looking to 2010
One provision made retroactive to Jan. 1, 2010, is a small business tax credit for nonelective employer contributions to purchase employee health insurance. "To be eligible for the tax credit, the employer must have fewer than 25 full-time equivalent employees (FTE), the average annual wages of its employees must be less than $50,000 per FTE for the tax year, and the employer must pay the premiums under a qualifying agreement," Krause says.
The credit itself is 35% of the employer's premium expenses that count toward the credit. Krause says that is scheduled to increase to 50% in 2014. But the credit is reduced when an employer exceeds 10 FTEs and when the average annual wage exceeds $25,000.
Other changes that also became effective during 2010 include:
- Effective March 30, the legislation changed the definition of a dependent for purposes of employer-provided health benefits to include a child (dependent or not) under age 27 at the end of the tax year.
- High-risk insurance pools for individuals with pre-existing conditions were to be established by June 23. However Stevens notes that "none exist yet."
- Policies may no longer have a lifetime benefit on the dollar value of essential health benefit, nor may they be cancelled if the policyholder becomes sick.
2011 and beyond
The legislation continues to make additional significant changes, many of which are designed to help pay for its costs:
- Employers are required to report the total cost of employer-provided health care on an employee's W-2. This reporting is strictly informational, but it will entail an additional burden on the employer.
- Increase from 10% to 20% the additional tax on nonqualified distributions from Health Savings Accounts (HSA) and Archer Medical Savings Accounts (MSA).
- Distributions from HSA, Archer MSA, and similar plans for over-the-counter medicines are considered a "qualified" expense only if prescribed by a doctor. This is another significant change. "Many people get reimbursements for a wide variety of over-the-counter medicines but this opportunity will be gone," says Stevens. "Employees will need to adjust their contributions to these accounts."
- The Medicare tax on high-income taxpayers increases from 1.45% to 2.35%. The thresholds are $250,000 for married taxpayers filing a joint return, $125,000 for married taxpayers filing a separate return, and $200,000 for any other taxpayer. This tax will be levied on both employees and employers.
- Unearned income, such as interest and dividends, over certain thresholds will be subject to a Medicare tax. For individuals, the tax is 3.8% of the lesser of net investment income or the excess of Modified Adjusted Gross Income over the threshold (same as the thresholds in the previous bullet).
- The threshold for itemized deductions of unreimbursed medical expenses generally increases from 7.5% of adjusted gross income to 10%. Krause adds that "not many people are able to deduct their medical expenses at the 7.5% floor, but for those still able to deduct at 10%, they stand to lose a large deduction.
- For example, a taxpayer with Adjusted Gross Income of $100,000 and $12,000 of medical expenses will get the deduction either way, but they will only be able to deduct $2000, not $4500 as under the old law. However, for the years 2013-16, the floor will remain at 7.5% if the taxpayer or spouse is 65 years old before the end of the year.
In total, this new legislation in uncharted territory for concrete producers of all sizes, their accountants, human resources officials, and health care providers. Time will tell if the new law accomplishes its stated goals.
Joel M. Ungar is a principal with the Silberstein Ungar accounting firm in Bingham Farms, Mich., and is an occasional contributor. E-mail email@example.com. Visit www.sucpas.com.