Health Care Reform Blog : Health Care Law Reform : McDermott Will & Emery Law Firm

The Facts

President Obama signed historic health reform legislation on March 23, 2010, P.L. 111-148.  A week later, the president signed a package of amendments to health reform, the Health Care and Education Reconciliation Act of 2010, H.R. 4872.  Following are highlights of the most significant revenue raisers organized by the year in which they will begin under health reform legislation, as amended by the reconciliation package.

2010

• Imposes a 10 percent excise tax on individuals using tanning services
• Adds provision to disqualify unprocessed fuels, including so-called black liquor, from the section 40(b) cellulosic biofuel credit starting in 2010
• Codifies the economic substance doctrine and imposes penalties for transactions that lack economic substance

2011

• Imposes non-deductible annual flat fees on pharmaceutical manufacturers and importers based upon relative market share
• Conforms the definition of qualified medical expenses for health savings, health flexible spending accounts and health reimbursement arrangements to the definition used for the itemized deduction
• Increases the penalty for distributions from health savings accounts prior to age 65 not used for qualified medical expenses from 10 to 20 percent

2012

• Imposes a 2.3 percent excise tax on sales of most medical devices by manufacturers, producers or importers
• Requires information reporting for businesses that pay corporate providers of property and services any amount more than $600  

2013

• Increases the Medicare payroll tax from 1.45 percent to 2.35 percent for individuals with wages of more than $200,000 and $250,000 for joint filers
• Imposes a new 3.8 percent tax on investment income referred to as “unearned income” for individuals with wages of more than $200,000 and $250,000 for joint filers
• Imposes non-deductible annual flat fees on health insurance providers and clinical labs based upon relative market share
• Limits the amount of contributions to health flexible spending accounts to $2,500 per year
• Eliminates the deduction for the Medicare Part D subsidy for employers who maintain prescription drug plans for eligible retirees
• Increases the floor for deductible medical expenses from 7.5 percent of adjusted gross income to 10 percent
• Caps the amount of deductible executive compensation for health insurance companies at $500,000

2014

• Increases the estimated corporate tax payments for firms owing at least $1 billion in payments due in July, August and September 2014 by 15.75 percentage points

2018

• Imposes a 40 percent excise tax on insurance companies and plan administrators for health insurance plans above the threshold of $10,200 for individual coverage and $27,500 for family coverage

What’s at Stake

• Individuals earning over $200,000 and $250,000 for joint filers will pay a higher payroll tax and an excise tax on investment income.
• Insurance coverage limits may be reduced to avoid the 40 percent excise tax. 
• The costs of pharmaceutical drugs, insurance lab work and medical testing fees could increase as a result of the new fees imposed on these companies.
• Transactions must satisfy the economic substance doctrine to avoid the imposition of penalties. 

Steps to Consider

• Affected entities should carefully evaluate the impact of the proposed new taxes and fees.  
• Individuals will want to consider planning for the new taxes on “unearned income.”

• Print
• Share Link

The Facts

The Patient Protection and Affordable Care Act (Pub. L. No. 111-148) includes four primary adjustments to the federal income tax exemption requirements for nonprofit hospitals.  Under the act, tax-exempt hospitals must take the following actions:

• Conduct a community health needs analysis at least once every three years, soliciting input from the communities that they serve
• Make widely available their financial assistance policies, which must specify eligibility criteria and, for discounted care, how they determine amounts that are billed to patients
• Notify patients of financial assistance policies through “reasonable efforts” before initiating various collection actions or reporting accounts to a credit rating agency
• Restrict charges of uninsured, indigent patients to those amounts generally charged to insured patients

The act imposes penalties on hospitals that fail to timely conduct their community health needs assessments.  Under the act, the Internal Revenue Service must review the exempt status of hospitals every three years.  In addition, the act requires the U.S. Department of the Treasury, in consultation with the U.S. Department of Health and Human Services (HHS), to prepare an annual report for the U.S. Congress on charity care, bad debt expenses, certain unreimbursed costs and costs incurred for community benefit activities.  In five years, Treasury and HHS must also provide Congress with a report on community benefit-related trends.

What’s at Stake

In light of a recent Illinois Supreme Court decision denying property tax exemption to a nonprofit hospital, these new standards contribute to the ongoing dialogue with respect to whether and to what extent nonprofit hospitals are distinguishable from for-profit hospitals and deserve federal income tax exemption.  These provisions can be viewed as requirements that will differentiate tax-exempt hospitals and improve transparency of how they fulfill their charitable, patient-care missions.

Steps to Consider

Tax-exempt hospitals should quickly consider how to comply with the act’s new requirements for federal income tax exemption.  While most of the act’s provisions have postponed effective dates, the tax-exempt specific requirements for hospitals will be effective very soon, perhaps as soon as tax years beginning April 1, 2010.

• Print
• Share Link

The Facts

The Patient Protection and Affordable Care Act was enacted on March 23, 2010, and the Health Care and Education Affordability Reconciliation Act is expected to be enacted shortly.  This health care legislation contains provisions that will strongly impact employers.  These provisions include the requirement that employers with 50 or more employees offer qualifying health coverage or pay a penalty of $2,000 per uncovered employee, elimination of the Medicare Part D subsidy tax exemption and imposition of a 40 percent excise tax on health coverage that exceeds certain thresholds.  In addition, the legislation limits health care reimbursement account contributions to $2,500 per year and no longer allows over-the-counter drugs to be reimbursed through health reimbursement accounts or health savings accounts unless prescribed by a physician. 

The legislation also requires group health plans that cover dependent children to extend coverage to such dependents until age 26.  Beginning in 2014, this coverage must be extended regardless of whether the dependent has access to other employer-provided coverage.  Further, group health plans can no longer impose lifetime or restrictive annual limits on plan benefits or impose pre-existing condition exclusions on children under age 19, and no pre-existing condition exclusions are allowed beginning in 2014.

What’s at Stake

These provisions will cost employers monetarily and increase employers’ administrative burdens.  Employers have many more compliance issues to monitor as a result of this legislation.  Failing to comply with these requirements could result in additional expenses by way of substantial penalties. 

These provisions also have the potential to decrease employer-provided benefits.  For example, employers will find it much more expensive to provide retiree benefits without the prescription drug coverage subsidy tax exemption and active medical benefits, with the threat of a 40 percent excise tax on health coverage beyond the stated threshold and with the new restrictions on plan terms, such as no lifetime limits or pre-existing condition exclusions.  This extra cost may serve as a deterrent to providing some benefits.   

Steps to Consider

• Take steps to ensure all requirements are met to avoid penalties. 
• Review effective dates for requirements pertaining to benefits and take action as necessary.
• Evaluate the impact of future requirements on benefits and take preemptive action.
• Modify open enrollment materials, summary plan descriptions and plan documents as necessary.

Click here to read a full news alert.

• Print
• Share Link

The Facts

The White House’s recent health care plan includes a proposal that would increase the Medicare tax on wealthy individuals.  Under the current system, all employees, regardless of how much they earn, pay 1.45 percent into the Medicare system every paycheck.  Employers chip in an additional 1.45 percent, to bring the total Medicare tax to 2.9 percent per employee.  The tax is strictly a payroll tax and does not affect “unearned income” from investments. 

The president’s proposal introduces a progressive element into the tax:  individuals earning more than $200,000 and couples earning more than $250,000 will pay an additional 0.9 percent surcharge in each paycheck, bringing their total payroll Medicare tax to 2.35 percent. 

Perhaps more importantly, the White House has proposed changing the Medicare funding system from a purely payroll tax to an income tax, by expanding it to cover unearned income.  Individuals earning in excess of $200,000 and couples earning more than $250,000 will be taxed at a 2.9 percent rate on unearned income from interest, dividends, annuities, royalties, and rents and capital gains.  The changes, if approved by Congress, would take effect in 2013.

What’s at Stake

The Medicare tax on businesses will remain at 1.45 percent, regardless of the employee’s salary.  High-earning employees, however, will face a 0.9 percent increase to their Medicare tax.  Furthermore, wealthy individuals who receive at least some of their wealth through unearned income will now have to pay a 2.9 percent tax on that income (equivalent to the amount paid jointly by the employer and employee through the payroll system). 

Steps to Consider

Individuals will want to monitor the White House’s proposal, particularly as to whether unearned income will be taxed at the 2.9 percent rate.  Individuals may want to adjust their investment strategies to minimize the impact of the tax.

• Print
• Share Link

The Facts

After months of heated debate and an unprecedented all-day White House health reform summit on February 25, 2010, President Obama has begun the final push toward passage of comprehensive health reform.  Current negotiations involving Senate Democratic leader Harry Reid and House Speaker Nancy Pelosi are focused on the president’s proposal, which is largely based on the bill approved by the Senate on December 24, 2009, but which also reflects compromises reached between Senate and House Democrats.

On March 2, 2010, the president submitted a letter to congressional leaders indicating that he is open to further examining the following four issues raised by Republicans during the summit:

• Engaging medical professionals to conduct undercover investigations of health care providers to combat fraud, waste and abuse within federal reimbursement programs
• Establishing “health courts” to resolve medical malpractice claims
• Encouraging the use by individuals of high-deductible health plans
• Increasing physician reimbursement—in response to expanding Medicaid to cover more people—in a fiscally responsible manner. 

Click here for the letter.

And, on March 3, 2010, just a little under a year after his initial speech announcing his intent to overhaul the health care system, President Obama made it clear during his 20-minute speech that he intends to utilize the reconciliation process, resulting in an up-or-down vote on a merged measure.  Click here for the speech transcript.  The president also made it clear that he expects Democrats to support this strategy, regardless of their re-election prospects and concerns.

What’s at Stake

Succeeding with this strategy, however, will not be easy.  Not only will Speaker Pelosi have difficulty rounding up the necessary votes in the House, but Senate Republicans may attempt to forestall the process by offering a myriad of amendments.  However, if the president and bipartisan negotiations are successful, a health reform plan may be enacted by early April 2010. 

Steps to Consider

All in the health sector, including health care consumers, should analyze any revisions to the president’s proposal and should continue to closely monitor the progress of the health reform debate.

• Print
• Share Link

The Facts

After seven hours of extraordinary political theater at the White House health care summit on February 25, 2010, President Obama is no closer to winning Republican support for his reform plan. Click here for summit transcripts. Indeed, Republicans claim a majority of the public opposes the Democrats’ health overhaul plan and have called for “starting from scratch.” Although the summit was unsuccessful in resolving the bipartisan split, it effectively restored health reform to center stage, and Democrats are forging ahead with new vigor. 

Because the January election of Senator Scott Brown (R-MA) deprived Democrats of a filibuster-proof super-majority in the Senate, Democrats are expected to use an expedited budget reconciliation process to move reform legislation. While the precise details will be determined by both parliamentary requirements and political considerations, it is expected that the House—once assured that specific changes are forthcoming—will approve the Senate-passed health reform bill (HR 3590). The Senate will then pass a “side-car” health reform bill through the reconciliation process, which requires only a simple 51-vote majority. This “side-car” will make changes to HR 3590 designed to be responsive to the concerns of House Democrats. These changes will likely include increased subsidies to assist lower income Americans to purchase health insurance and changes to minimize the impact of the “Cadillac tax” on high-cost insurance plans. The House would also approve the reconciliation bill. The president would then need to sign into law both the Senate-passed health reform bill and the reconciliation bill that amends it. 

What’s at Stake

The president and congressional leaders do not currently have the Democratic votes needed to pass health reform legislation without any Republican support, but the campaign to find those votes is in full swing. If the votes are secured, massive health overhaul could be enacted in the near-term. 

Steps to Consider

The president will likely issue revisions to his reform plan, which may reflect incorporation of some Republican ideas. Despite this, no Republican support is expected. All in the health sector, including health care consumers, should analyze any revisions to the president’s proposal and continue to monitor the progress of the health reform debate.

• Print
• Share Link